Tired of gold? Try platinum

TradingPub Admin | August 5, 2013

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Want some free trading education? If you are tired of hearing about the sharp price declines that gold has been experiencing lately, you may want to consider platinum, as this precious metal could benefit from various tailwinds moving forward.

One factor that seems to be putting pressure on platinum prices to move higher is substantial demand for the metal from automakers, according to Bloomberg. Car sales have been increasing amid the global economic recovery, and the catalytic converters contained in these vehicles make significant use of the metal.

Robust car production
London-based Johnson Matthey Plc., which is responsible for the production of roughly one in every three autocatalysts, has stated that automakers purchase 40 percent of the platinum that is created on a worldwide basis, the media outlet reports. As a result, these organizations are the largest purchasers of the metal on the planet.

Analysts at Commerzbank have stated that since the sales of these cars have been substantial, platinum has been able to appreciate after reaching a recent low in October 2009, according to MarketWatch.

Strong price performance
Amid this robust demand, futures for the metal have dropped 7 percent in 2013, compared to 22 percent for gold, the media outlet reports.

In addition to the fact that platinum has fared better than other metals, some market experts have predicted that the difference between the prices of futures for this metal and those of gold will continue to grow, according to Bloomberg.

The five precious metals analysts who have the most-accurate records for predicting future price movements according to the media outlet have stated that by the fourth quarter, platinum will cost 19 percent more than gold. This compares to a difference of 11 percent on July 15, and 8.5 percent on July 30.

Supply challenges
In addition to benefiting from robust demand, platinum is currently facing supply challenges. Anglo American Platinum, which is the largest producer of the commodity in the world, has stated that it will cut its annual output of the metal by 350,000 ounces, the news source reports. In addition, the company has indicated its plans to temporarily cease production at three of its shafts.

Lowered production from firms in South Africa has reduced the global supply of the metal, according to ETF Trends. This nation is responsible for creating the lion's share of the metal that is created worldwide.

Bullish economic fundamentals
"Demand for platinum is very likely to move higher while supply is quite constrained," Bart Melek, who works as the head of commodity strategy at TD Securities in Toronto and is the fifth-most accurate precious metals forecaster according to Bloomberg, told the news source. "We'll see deficits for the next few years and have strong investor interest. Gold tends to be a hedge for when things are really bad and when things stabilize you no longer may want to pay to hold that zero-yielding asset."

Tom Kendall, an analyst at Credit Suisse Group AG in London who has also been singled out as having very accurate forecasts by Bloomberg, has stated that the global fundamentals should be bullish for the metal.

"On the platinum demand side, the feeling is that the worst is over and you've still got those supply-side issues," Kendall told the news source. "The worst period of crises for the global economy has passed and risks of another financial meltdown are subsiding. Something that is more of an industrial metal than an alternative currency like gold should outperform."

There are clearly many variables that can affect platinum prices. If you want more free trading education, you can find it at TradingPub, home to some of the top investors and traders in the industry.