Platinum and Palladium See Rising Investment Demand While Production Plummets
Gold has crept higher in all currencies today and is particularly strong in Swiss francs which has come under pressure after the a report showed the Eurozone pulled out of recession last quarter. While German and French gross domestic product exceeded analysts forecasts, it is premature to become over excited about a recovery in the Eurozone which remains in a very precarious state.
Gold’s fall yesterday was attributed to unfounded fears that the U.S. Fed may begin tapering next month. Atlanta Fed President Dennis Lockhart said that bond purchases may be reduced next month even though inflation is below their target. Profit taking was a more likely reason for yesterday’s small fall.
The Federal Reserve has been suggesting for months, indeed years, that they would return to more normal monetary policies by reducing bond buying programmes and gradually increasing interest rates. ‘Talk is cheap’ and it is always best to watch what central banks do rather than what they say.
Near zero interest rates and bond buying are set to continue for the foreseeable future. Precious metals will only be threatened if there is a sustained period of rising interest rates which lead to positive real interest rates. This is not going to happen anytime soon as it would lead to an economic recession and possibly a severe depression.
Platinum and palladium prices are likely to gain in the coming months as South African supply fall again due to widespread labour disputes and strike action, problems with the national electricity infrastructure and surging energy costs.
These significant challenges have created numerous disruptions to the mining industry in South Africa and greatly reduced domestic precious metal production in 2012 and this has continued in 2013.
Geological constraints and declining ore grades may also be leading to reduced production.
South Africa supplies almost 60% of the world's platinum (including secondary supply) and 30% of the world's palladium (including secondary supply).
According to Johnson Matthey, platinum production fell almost 16% in 2012 while palladium production declined 10% last year alone.
With prices well below their recent highs, looming production cuts will leave markets tight supporting prices and likely leading to higher prices.
A record deficit in platinum supplies is set to push prices higher and demand is boosted by the new exchange traded fund (ETF).
Platinum assets in exchange-traded products are set to exceed palladium holdings for the first time as investors bet on mining disruptions in South Africa, the world’s largest producer, according to TD Securities Inc.
The Bloomberg Chart of the Day (see above) shows holdings in platinum ETPs climbed 50% this year to 68.59 metric tons while palladium ETPs are up 19% to 69.4 tons.
Palladium assets have exceeded platinum since at least 2007, according to data compiled by Bloomberg.
Platinum, used in automobile catalytic converters, jewellery and increasingly as an investment and store of value, will have a record shortage of 844,000 ounces this year, as mining output in South Africa falls according to HSBC.
Assets in NewPlat, a South African ETP started on April 26, now account for about a quarter of all platinum in the products, data compiled by Bloomberg show.
South African investors realise that the physical deficit in platinum will lead to higher prices and are positioning accordingly.
Platinum will rise 13% to average $1,700/oz in the fourth quarter while palladium climbs 12% to $825/oz, according to TD Securities forecasts.
HSBC’s Jim Steel recently said that the "possibility exists for further disruptions to production in South Africa. Additionally, the long-term challenges of low platinum prices make a sizable amount of current production uneconomical. This leads us to believe that higher prices are necessary to sustain production longer term."
GoldCore believe that the supply demand fundamentals are very strong and should lead to new record nominal prices above $2,300/oz for platinum and $1,125/oz for palladium in the coming years.
The fundamentals of both PGM metals look increasingly strong and both precious metals are attractive for those looking to further diversify the precious metals component of their investment and savings portfolio.
Owning physical platinum and palladium bullion in allocated accounts rather than an ETF is important. With physical bullion in your possession or in allocated accounts there is zero default risk.
While there is no guarantee of return on capital , there is a guarantee of return of capital as bullion cannot be ‘bailed-in’ or become worthless as many stocks and bonds have done throughout history.
Despite the very strong fundamentals, buyers should not over allocate to these precious metals and a 5% allocation to each precious metal is prudent.
Gold Swings as Investors Weigh Stimulus Against Increased Demand - Bloomberg
Gold futures log small gain after 1% loss - Market Watch
Default Fears Escalate As Run On Physical Gold Intensifies – King World News
A (Photovoltaic) Silver Bull in China – Casey Research
ECB: No one is 'safe' from euro crisis – EU Observer
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