Platinum Bulls Are Stampeding!
Have you noticed the price of platinum lately?
In the past 12 trading days, platinum has surged from $1,520 an ounce all the way up to $1,700… an 11% jump. Compare that to gold and silver’s paltry gains and you’ll find platinum is the top performer in the precious metals complex since the start of 2013.
What’s going on?
A lot’s happened in the platinum market over the past two years to get us to this point.
So let me give you a quick recap…
With European debt fears raging, the price of platinum took a steep dive in 2011. Back then, metals investors worried that weakening European economic activity would send auto sales on the continent into a tailspin. What’s more, worries of a hard landing in China had investors thinking auto sales would dive in that country as well.
As you may know, platinum is used heavily in the global automobile industry for catalytic converters. So when fears of a downturn in global auto sales took center stage, platinum prices took a hit.
In fact, the price of platinum collapsed from $1,900 an ounce in mid-2011 down to $1,400 by early 2012… a 25% freefall. Since then, the precious metal has traded in a range between $1,700 and $1,400.
Take a look…
As you can see, it’s been one heck of a roller coaster ride for platinum since mid-2011.
But that may be about to change…
Now that European debt fears are falling by the wayside and Chinese economic readings are regaining strength, global auto sales should be at their strongest in years. In fact, Chinese car sales are expected to grow by 7% this year. As a result, platinum demand will likely be strong in 2013.
However, there’s one little problem…
Platinum supply may not be there to support the growing demand.
You see, the Bushveld Complex of South Africa holds the largest deposit of platinum ore in the world. But with platinum prices in the gutter in recent years, miners in the Bushveld fell on hard times. Prices were just too low for their operations to generate positive returns.
As a result, many miners are in the process of slowing production at the Bushveld Complex…
In fact, investors found out earlier this week that Anglo American Platinum (AGPYY), the world’s largest platinum producer, is halting production at several of their South African mines. According to analysts at Credit Suisse, Anglo’s slowdown will take around 450,000 ounces out of global platinum supplies this year.
And Anglo American isn’t the only miner with problems…
South African mine workers were up in arms in August 2012 after word spread that Lonmin, another platinum miner, was about to slow production and cut jobs. Striking miners halted production at Lonmin for several weeks last summer, sending platinum prices up 20%.
Now that 14,000 jobs are about to be cut at Anglo American, we could very well see additional South African mine violence in coming months.
So where does this information leave us?
Supply shortfall fears will likely lead to higher platinum prices this year.
As a matter of fact, there’s a very good chance platinum regains its lofty premium to gold in 2013. As you may know, platinum usually trades at a premium to gold thanks to its rarity. It was only until 2011 that the dynamic changed and gold became the most expensive precious metal.
How can you capitalize on further gains in platinum?
The iPath DJ-UBS Platinum ETN (PGM) tracks the price of platinum and can be traded intraday, just like a stock. But beware, there will be plenty of volatility in platinum in coming months. It’s best to wait for a retracement in the price and then jump on board.
Until Next Time,
Justin Bennett
Category: Commodities
