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Platinum’s alternative investment appeal

Posted on 2012-11-06, By A-Best Staff

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum is on track for the best quarter in over a year, as demand for the metal as an alternative to gold has nudged prices up 23 per cent. Platinum’s premium to gold stood at $213.15 an ounce yesterday, compared with $1,041.83 a year ago.

Platinum’s rapid price crash in 2008 was exacerbated by panic overselling.  While the metal may have been overbought, and prices may have been inflated by South Africa’s power woes, the fact that platinum is such a small market underpins the likelihood of overbuying.  As demand for auto catalysts, the key PGM market, collapsed platinum was oversold. By the same token, PGM miners were quick to react on the supply side, cutting and rationalizing across the board, helping platinum prices regain lost footing.

Platinum ended 2008 59 per cent below its March record as car sales plunged. For miners, the return to respectable pricing came just in time to prevent drastic cost saving measures. When prices fall below $1,000 per ounce, more than a quarter of the industry is unprofitable.

As the auto industries woes continue, increased jewelry demand is stimulating prices.  ”Platinum group metal prices jumped in part on a more favorable outlook for platinum jewelry demand,” James Steel, an analyst at HSBC Securities, “Based on our conversations with jewelers and merchants, we believe that platinum jewelry demand  has risen recently as low prices have attracted new buyers.”

The metal is also benefiting from more investment demand as weakening currencies and falling stock markets funnel investors to a safe haven. There has been a reported surge in inflows into physically-backed precious metals ETC’s of ETF Securities. The firm informed that investment in platinum was the largest in over a year. ETF’S Physical Platinum  addeds 45,756 ounces of platinum holdings last week, the largest weekly increases since February 2008. The platinum holdings of ET’FS Physical Platinum (PLAT) have increased 115 per cent since hitting a low in November 2008. Total platinum holdings now stand at 290,095 ounces, equivalent to $334 million.

Deutsche Bank AG raised its platinum 2009 price forecast by 7.2 per cent to $1,086 an ounce. “Although autocatalytic demand is collapsing along with the world economy, we would caution that jewelry demand could remain relatively robust given the recent correction in price,” Johannesburg-based analyst Gary Pearson wrote in the Deutsche Bank quarterly commodities report. “The platinum market balance is expected to shift from a deficit in 2008 to market surplus in 2009, however we do not expect market surpluses in platinum to be large,” Pearson added.

Platinum developers overall continue to be challenged by deeply depressed stock prices. The market remains very bumpy and difficult to predict because most of our products are used in the automotive sector. Toyota Motor Corp., the world’s largest carmaker, said yesterday industry sales in the U.S. worsened in March as rising unemployment cut demand. U.S. automakers General Motors Corp. and Chrysler LLC say they need as much as $21.6 billion in new government funding to stay in business and reorganize.

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