Platinum ‘Supply Squeeze’ Likely To Lead to Record Prices

Today’s AM fix was USD 1,378.50, EUR 1,030.35 and GBP 880.32 per ounce. 
Yesterday’s AM fix was USD 1,386.00, EUR 1,038.59 and GBP 881.79 per ounce.

Gold was little changed on Tuesday as investors awaited guidance from a Federal Reserve meeting on the outlook for the bank’s still incredibly ultra loose stimulus programme, amid mixed U.S. economic data.

Uncertainty about the tenure of Federal Reserve Chairman Bernanke and the possibility of his early retirement may lead to increased risk aversion which will support gold.

Platinum’s fundamentals look increasingly strong and platinum is an attractive diversification for bullion owners looking to further diversify the precious metals component of their investment and savings portfolio.

A record deficit in platinum supplies is set to push prices higher, as unrest sweeps the South African mining industry and demand is boosted by the auto sector and a new exchange traded fund (ETF), according to HSBC, as covered on CNBC (see Commentary).

Platinum in USD – 10 Year

Platinum, which has been influenced by swings in the price of gold since April this year, hit a six-week high of $1,531 earlier this month following the "highly successful" launch of a new physically backed ETF. According to respected James Steel, chief precious metals analyst at HSBC, prices will rise further over the next two years, as the risk of South African mining strikes weigh on output.

But Steel also cut his price target on the metal in the short term because platinum had been influenced more than he had anticipated by the sharp swings in the price of gold.

Platinum Holdings All Known ETFs 

Platinum prices have fallen around 17% from the highs in February, as investors sold their gold positions. While both commodities are considered precious metals, platinum has far greater industrial uses.

"A rotational shift out of commodities and into equities also took its toll on the platinum market," Steel said.

He predicts the metal will peak at $1,875 by 2015 or a 30% return in 3 years, before falling back to a more steady level of $1,825 thereafter.

"The launch of the South African ETF in mid-May has already attracted a whopping 371,000oz of platinum demand to date. This is more double the growth in the rest of the platinum ETFs combined this year," he added.

Jewelry demand remains strong, and if industrial or auto demand pushes above forecasts, Steel said platinum prices would rise. At the same time, limited output is likely as further strike action in South Africa, the hub for global platinum production, could hit supplies.

Platinum Supply Mine Production South Africa 

"Widespread strike action and other stoppages in South Africa greatly reduced domestic platinum production in 2012. According to Johnson Matthey, production fell almost 16 percent in 2012," said Steel.

"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 $2,000/oz in the coming years.

Steel’s new average price forecasts for 2013 is $1,580 down from $1,710 forecast previously and for 2014 it’s $1,725 down from $1,800 previously.

Based on platinum’s price of $1431/oz today, that’s a forecasted 9% gain this year with zero default risk and a guarantee of return of capital as platinum bullion cannot be ‘bailed-in’ or become worthless like stocks and bonds.

NEWS

Gold holds steady ahead of Fed meeting – Reuters

Gold Holds Losses Before Fed Meeting as Investors Weigh Stimulus – Bloomberg

Obama Says Bernanke Has Stayed ‘Longer Than He Wanted’ – Bloomberg

HuaAn expects Chinese gold ETF to raise up to $489 Million – Reuters

UK’s Co-op Bank agrees to £1.5 billion ‘bail-in’ rescue plan – Reuters

COMMENTARY

Video: Outlook for Gold – $1,800/oz In Next 12 Months – Bloomerg

Gold’s Neglected Cousin Platinum to Face Supply Squeeze – CNBC

Video: Platinum Outshines Gold Amid Supply Concerns – Bloomberg

Gold Is Poised to Rally Mid-Summer – Huffington Post

Mark O'Byrne

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