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Platinum to mimic gold?

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

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum is known as “high-octane gold”, for its stronger price moves and prospects for a higher upside. Platinum is essential to the economies of many industrialized nations, globally, demand for platinum is the sum of; investment demand, industrial demand, and jewellery demand.  

Cumulatively, platinum has rebounded in 2009. The metal is tracking gains in gold; as investors seek a safe haven for wealth protection. Platinum is less than half the price it was a year ago, and the price differential with gold has narrowed to almost zero.  On the industrial side of things, the metal is having a lack luster performance.  

Platinum’s prime industrial use is in the auto sector, more specifically, for auto catalysts.  ”At the moment, much of the strength appears to be flight-to-safety buying with gold and bargain hunting, rather than any heavy industrial buying. The industrial side still looks quite weak, and that could limit the upside,” said Bill O’Neill, one of the principals with Logic Advisors. While industrial demand is weak, many analysts predict that we are at, or very near, the bottom.

European auto sales have not taken the hits seen in North America and Asia. At the same time, European governments are issuing strict emission standards, and offering incentives for consumers to trade in their old polluting cars for new ones.  Increased purchases of diesel vehicles in Europe may compensate for decreased purchases of gasoline powered cars worldwide. The diesel motor is preferred in Europe due to improved emissions and fuel economy; diesel vehicles contain four times the platinum than gasoline.

A pick up in demand in the jewellery sector is offering shock absorption to dire industrial numbers. Reports from India suggest platinum has been gaining market share in recent months, with one jeweller reporting that platinum accounted for 25 per cent to 40 per cent of his sales in January compared to the norm of 10 per cent to 15 per cent.  As gold prices continue to break historic highs every day, sales of the yellow metal have plummeted in India’s vast bullion and gold jewellery markets, the biggest in the world. High prices of gold and low prices of platinum (which is the more valuable of the two) are making purchasers choose platinum over gold. Gold, diamond and platinum jewellery are integral part of Indian weddings, especially among the rich and upper classes.

Goldman Sachs is optimistic about the platinum market’s potential.  The global investment banking and securities firm raised its platinum price forecast for this year by 24 per cent and boosted its three-year outlook. Platinum may average $1,050 an ounce in 2009 and rise to $1,250 in 2012, compared with earlier estimates of $847 and $942 respectively. Gold, the only metal to advance in 2008, has gained 12 per cent since the year started as investors fled declining equity markets. Platinum has advanced 16 per cent and averaged $993. The metal may average $1,004 an ounce in 2009, rising to $1,262 in 2012. “Platinum in particular has a tendency, under certain circumstances, to mimic gold’s price performance as a safe-haven investment,” the analysts said. “In the medium term, we see platinum in deficit,” which will support the price, they added.

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