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Platinum may emerge hotter than gold, silver
2009-09-22 11:00:00

http://www.commodityonline.com/news/Platinum-may-emerge-hotter-than-gold-silver-21324-2-1.html

By Jessica Mead
With gold’s sudden surge stealing both the headlines and the market’s attention, it is very easy to forget that there are markets in other precious metals. For spread betters looking to move beyond the realms of gold to something altogether rarer and more unique, platinum currently offers a wealth of opportunities.

One of the scarcest precious metals on the planet it is estimated that new mine production is only about 210 tonnes per year. The price of platinum has suffered during the financial crisis because of the global reduction in manufacturing and investors’ lack of enthusiasm for metals.

Back in May 2008, an ounce of platinum would have set you back more than $2,200. Today it is trading at near one-year highs of $1,330, having dropped as low as $732.50 on 28 October 2008 as investors moved out of risky commodities towards perceived safe havens such as gold and US Treasuries.

And last week, the chief financial officer of Stillwater Mining, North America’s largest platinum group metals producer, told Reuters in an interview that the worst was over for platinum and that the price has now bottomed out and should rise significantly over the next two to three years as economic recovery boosts investor demand.

Although demand currently remains depressed for the precious metal, its industrial uses in the automotive industry and in electrical components mean that there is likely to be a demand-led recovery in the price of platinum as the fragile global manufacturing sector starts to exit recession.

Platinum is most commonly used by the automotive industry in catalytic converters, which help clean exhaust fumes. Admittedly, the last 12 months have seen car manufacturers suffer and in the case of General Motors even file for bankruptcy, which has had a subsequent negative impact on the price of platinum.

But in the near-term, government stimulus programmes encouraging consumers to replace their old cars will give the auto industry and its platinum suppliers a much-needed boost. Equally, mid-income developing countries such as China and India are expecting demand for private vehicles to surge as the population becomes wealthier.

Furthermore, with the future expected to be a much greener one and legislation on the way to reduce cars’ carbon emissions, the need for catalytic converters is only going to grow and platinum demand is unlikely to falter.

Also boosting the precious metal is the current weakness in the US dollar, which is making dollar-denominated assets very attractive to foreign buyers.

DOLLAR WEAKNESS
Joshua Raymond, market strategist at City Index, says: “The US Dollar index has recently bounced from support at 76 and as a result investors were quick to cash in their profits in platinum and other metals last Friday. Dollar weakness will need to continue if platinum prices are likely to reach more upside from these levels.”

However, he warns that prices also remain at risk from bouts of profit-taking, having risen over 80 per cent in the last 11 months and recently reached new one-year highs.

Platinum is a notoriously volatile commodity and continued doubts about the recovery in the manufacturing sector could see its price quickly slip back down.

Spread betters looking to go long on the precious metal as a play on its relative scarcity and on the economic recovery will find platinum spread bets available with all the major providers, with the futures contract on the New York Mercantile Exchange (NYMEX) as the underlying contract for the spread bet.

IG Index is offering contracts on the two nearest quarters – October 2009 and January 2010 with a spread of three basis points and a minimum bet of £10. Trading is almost 24 hours – with a 45 minute break between 10.15 and 11pm GMT. This is good news if you are a part-time spread better trading only in the evenings. GFT offers much the same, also with a spread of three basis points and a margin requirement of 5 per cent.

But remember that all of these spread bets are based on futures contracts, so they will expire every quarter. Normally, your spread betting provider will roll your position into the next quarter’s contract, but the price can see some movement and volatility ahead of expiry – something to both take advantage of and be aware of at the same time.

Gold might be the commodity hitting the headlines at the moment, but other precious metals have plenty of shine, too.