Platinum loses shine in face of gold
After 10 years of prosperity, platinum and gold are almost on a par
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.