by Adrian Ash
Friday,
27 July 2012
Store-of-value gold
has never been so expensive against industrial platinum...
BOTH PLATINUM and gold are useful
metals. But where gold's use is ultimately social – being a thing of beauty,
symbol of power, store of value and a means of exchange since the earliest civilizations – platinum is primarily
an industrial metal. Which isn't helping platinum versus the gold price
one bit right now.
Platinum – from platina, meaning
"little silver" in Modern Latin via Spanish – was only identified as
a precious metal in the mid-18th century. So it lacks gold's long history of human
use. In our modern age of global commodity markets, unbacked
fiat currency, and fast-growing car ownership
however, little silver has always traded at a steep premium to gold – a 46%
premium per ounce on average.
Hence the problem amid our economic
depression today.
"Platinum lacks safe haven status and has limited investment demand,"
explains Morgan Stanley's commodities team. So gold has never before been this
expensive in comparison.
Yes, jewelry accounted last year for nearly
one-third of global platinum demand. But little of that was store-of-value
demand such as gold enjoys. Investment demand remains only a sliver of world
off-take. Whereas demand from the glass, medical, chemical and petroleum
industries comes on top of a further 38% of demand in 2011 coming from the auto
sector. Most notably in Europe, because earlier tax
incentives now
mean 1-in-3 vehicles on the continent's roads runs on diesel, thus needing a
platinum-only catalyst instead of the platinum-rhodium or palladium mix in
gasoline engines.
So platinum demand is directly exposed to the Eurozone
crisis. So exposed, in fact, that London bullion prices are now nearing
mine-production costs around $1400 per ounce. Cue the bullish outlook:
"It is hard to see any exploration or investment in new mines taking place
until platinum prices push up well above $1,600/oz," says French
investment and bullion bank Natixis. "Already
some producers are making cutbacks," notes Nikos Kavalis at RBS, adding that "Current price levels are
unsustainable." Dan Smith of Standard Chartered is also bullish, telling Reuters that
"High-cost producers are currently losing money on an operating-cost
basis, and the pressure on the industry can already be seen."
What then of gold and its current but rare premium to more "useful"
platinum? There was a similar squeeze on platinum output – some 75% of which
comes from South Africa – the last time platinum outperformed the gold price. The first-half
of 2008 saw little silver jump 34% as the state-owned Eskom electricity
producer cut power to South Africa's mines in a bid to keep the lights amid
soaring coal prices. Gold couldn't keep up, managing a mere 10% rise in US
Dollar terms.
The credit crunch was by then well underway. But while it didn't really grab
the world's lapels and spit in its eye until September '08 – when the collapse
of Lehmans sparked a collapse in trade, investment
and business credit worldwide – leveraged bets on platinum futures, along with
a raft of other industrial commodities, had already turned sharply lower. So
"News that might have previously been viewed as bullish was ignored by the
market," said refiner and leading platinum data source Johnson
Matthey
in August 2008, pointing to Eskom's part-closure of a nuclear power plant – the
kind of news which has seen platinum vault $100 per ounce in a day at the start of
the year.
Store-of-wealth gold at first suffered right alongside. The "net
long" position of speculative players in Comex gold futures shrank by
almost four-fifths in the last six months of '08. The price, however, slid only
10% between July and Christmas that year, having found its floor very much
sooner – and rising very much faster – than any other tradable asset. Platinum,
in contrast, sank over 55%.
The gold price has since
pulled platinum down to fresh record discounts. Which might
signal either a turn, as the City's professional analysts think, or the true
depth of our current depression. But whatever tight supply might do for
"little silver" long-term, tight credit might trump it meantime.
Adrian
Ash
Gold price
chart, no delay | Buy gold online at live prices
Adrian
Ash is head of research at BullionVault – the secure,
low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in
Zurich on $3 spreads and 0.8% dealing fees.
(c)
BullionVault 2012
Please Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk. Information
or data included here may have already been overtaken by events – and must be
verified elsewhere – should you choose to act on it.