Platinum loses shine in face of gold

Af­ter 10 years of pros­per­ity, platinum and gold are al­most on a par

Finweek English Edition - - Creating Wealth - VIC DE KLERK

OVER THE PAST three months the price of platinum has fallen sharply in re­la­tion to the gold price. A trend started about 10 years ago, when platinum be­gan cost­ing more than gold. How­ever, the po­si­tion of 10 years ago – when the platinum price was just 10% more than the gold price – was re­peated last week. But that’s af­ter platinum was at least dou­ble the price of gold for the past five years.

The ar­gu­ment, which gained in pop­u­lar­ity about a decade ago, was that platinum had in­dus­trial uses, as a cat­a­lyst in ve­hi­cle ex­haust sys­tems and in the jew­ellery in­dus­try, while its sta­tus as a rare metal and hedge against mon­e­tary un­cer­tainty were just as good as that of gold.

Ex­change gold – es­pe­cially gold pro­duc­ers – for platinum and platinum pro­duc­ers was the pop­u­lar rec­om­men­da­tion over the past five years. A good ex­am­ple of that is An­glo Amer­i­can, which in­di­cated five years ago in its then large re­struc­tur­ing it wanted to re­duce its in­ter­est in An­gloGold Ashanti sig­nif­i­cantly in ex­change for a far larger in­ter­est in An­glo Platinum. The lat­ter’s mar­ket cap­i­tal­i­sa­tion is cur­rently R190bn, as against only R54bn for An­gloGold. Five years ago, the val­ues of both mines were about equal.

The rea­son for the sharp fall in the price of platinum should be sought in the cur­rent fears about an ex­tended world eco­nomic re­ces­sion, with even the word de­pres- sion, hark­ing back to 1929 and at least to 1933, some­times heard.

The poorer prospects for the ve­hi­cle man­u­fac­tur­ing in­dus­try and its sales – and there­fore also the de­mand for cat­a­lysts, in which platinum is used – are the main rea­sons for the ap­par­ently sharp fall in the de­mand for platinum by that in­dus­try. How­ever, it’s un­likely that the fall in ve­hi­cle sales will re­ally be large enough to ac­count for the very sharp fall in the price of platinum. Per­haps the gold price is un­nat­u­rally high, due to some prophets of doom rec­om­mend­ing in­vestors must now buy gold to pro­tect them­selves against the cur­rent fi­nan­cial and credit quake.

Per­haps there’s an over­sup­ply of platinum. In fact, min­ing gi­ant Xs­trata an­nounced last week that due to poor credit mar­kets and ex­pen­sive money it was no longer in­ter­ested in ac­quir­ing Lon­rho, SA’s third-largest platinum pro­ducer.

The very large cor­rec­tion in the platinum price rel­a­tive to that of gold looks some­what ex­ces­sive. The prices of platinum shares haven’t fallen to the same ex­tent. But at R166/share – more than 50% less than the R350 of March – Im­pala Platinum is start­ing to look very cheap. The same can be said of An­glo Platinum. Among SA’s smaller platinum pro­duc­ers there may be less strik­ing value, even though the prices of some have fallen more than those of the heavy­weights. Im­pala and An­glo Platinum cur­rently of­fer in­vestors the ad­van­tage of a pos­i­tive cash flow, even at the cur­rent very much lower price of platinum and the many mil­lions of ounces of re­serves for the fu­ture.

Im­pala and An­glo Platinum cur­rently of­fer in­vestors the ad­van­tage

of a pos­i­tive cash flow.

If you’re con­cerned about the world’s fi­nan­cial fu­ture – and there’s good rea­son to be – buy platinum be­cause it’s an ETF avail­able over­seas. And even the shares of platinum pro­duc­ers, with monies that you have ear­marked for gold.

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