Picture du Jour: Gold or platinum?

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“Au” and “Pt” may be dull chemical elements, but gold and platinum have certainly played their respective parts during the unfolding of the financial crisis. Revisiting the metals’ movements, it is clear from the table below that gold’s decline was much smaller than that of platinum – as platinum suffered from the deterioration in the auto industry – but the recovery of gold has also been lesser than that of platinum.

10-jan-1.jpg

The weekly chart of platinum relative to gold illustrates the massive underperformance (declining green line) of platinum relative to gold from May to early December. However, platinum has since reversed course and outperformed (increasing green line) gold to the extent that it now commands a premium of 16% – up from parity in December.

10-jan-2.jpg

The red line shows the platinum price, having peaked in March 2008 at $2,251 and topped out relative to gold in May at a premium of 140%. Technical analysis-orientated readers will also notice the blue MACD histograms moving into positive territory, indicating a buy signal for platinum in relative terms.

Although gold may experience a further pull-back in the short term (also as commodity index re-weighting runs its course), the longer-term outlook seems fairly positive as a result of a solid supply/demand situation, a likely waning appetite for US dollars and store-of-value considerations. According to the Telegraph, Merrill Lynch predicted that gold would soon break through its all time-high of $1,030 an ounce, and would hit $1,150 by June. Paul Walker, CEO of GFMS, said gold could rise to $1,100 by the end of 2009 as a result of the monetization of government debt. However, based on the relative chart above, platinum should have more upside potential than the yellow metal over the next few months.

The magnitude of gold or platinum’s out- or underperformance will depend on a number of fundamental factors, as summarized by Rhona O’Connel (GFMS Analytics), in an article on Mineweb.

• To what extent is the market discounting or overdiscounting a recovery in the auto sector, in the US in particular?

• To what level will the relative fortunes of the jewelry market help to sustain an outperformance by platinum over gold?

• When will the global economy start to stabilize and at what point does the market start to fear systemic inflation risks?

Although platinum does not have the same currency characteristics as gold, it could regain favor as a result of a revitalization of the platinum jewelry trade (especially in China) and tightening environmental restrictions. And let’s not forget that platinum is 30 times rarer than gold!

In short, there is a place for both gold and platinum in an investment portfolio, but be cognizant of the fact that precious metals are inherently volatile and are best bought following corrections. (The tickers for the gold and platinum ETFs are NYSE:GLD and LON:PHPT respectively. No platinum ETF is quoted in the US.)

 

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13 comments to Picture du Jour: Gold or platinum?

  • marco

    liquidity in london registered platinum etf – phpt.l – is pitiful. it would typically take several days to build up a position of gbp250k for example whereas no such problem in either gold or silver efts. pure play platinum miners – Aquarius platinum or lonmin – are probably best bets for quick exposure and , equally important, ability to get out again!

  • interesting.

    marc faber recently said in an interview that gold in relation to industrial metals was at very very high levels (not sure if he said all time or not).

    also, recently in barrons – http://online.barrons.com/article/SB123143761671364971.html

    bullish sentiment for gold is higher now then when gold was trading 1k+ in mar 08, however they rightfully point out that contrarian analysis may not matter so much.

    it seems obvious that fiat currencies are being meaningfully devalued relative to anything scarce with inelastic demand, such as gold. at some point this will be reflected in prices.

    when and by how much????????

  • There are two US based platinum ETN’s. PTM-E-Tracs UBS Bloomberg CMCI Long Platinum ETN and the PGM-iPath Dow Jones-AIG Platinum Total Return Sub-Index ETN. In addition there is a PTD-E-TRACS UBS Short Platinum ETN.

    None of these are very liquid yet but PTM seems to track the best so far.

  • I have checked out those ETN’s, Dave, and while i would love to own them, i have a fear of credit default risks associated with these. I don’t know how credible the risk is in these particular ETN’s, but personally, i am going with the GLD ETF for myself (if/when it corrects a little). In the event the ETF dies, you at least get something back, from what i understand, based on the NAV.

    Any thoughts on this? I’d love to get some feedback from people on default risk for ETN’s in general – as I am not 100% convinced ETNs are bad.

    of course, holding some physical in a safe deposit box would probably be my best bet if i am as paranoid as i am!

  • I am disappointed to see this commentary was mostly “relative” performance of gold vs. platinum. At this point, I am NOT interested in losing less in gold than I would have lost in platinum. (Or vice-versa this past week.)

    Everywhere I read, they seem to claim gold is not only strong but going to pop to $1K or $1,250 in the immediate future. It seems to me that the time to buy will be when all we reading is how it’s down & inevitably going to go down more.

    Just my two cents…

  • I have some questions on gold…pl. check out –

    What is the behaviour of gold price telling us?

    http://tradesense.blogspot.com/2008/12/what-is-behavior-of-gold-price-telling.html

    Look forward to your observations.

  • Tradesense: I am in agreement with your conclusion: “It appears to be a ‘heads you win-tails you win’ asset class both in a potential inflationary (or hyperinflationary as some think) situation and deflationary or depression conditions – desire to hold gold should be pre-dominant in both situations.”

    Your questions are: “In such a situation should not gold prices be already at the levels they are projected to be – $2000+? Why this hesitancy? Is the behavior giving some other signal?” As mentioned in your post, manipulation talk abounds, but also keep in mind that since bullion’s high of March 2007, its decline of 14.7% was in step with the dollar’s appreciation of 15.8% over the same period.

    Besides potential geopolitical triggers, I suspect gold will come into its own with the ascend of competitive devaluations / protectionism / beggar-thy-neighbor policies. As to the levels we may see in due course, it is really anybody’s guess.

  • Picture du Jour: Gold or platinum?…

    Gold or platinum? The extent of gold or platinum’s out- or underperformance will depend on a number of fundamental factors, but based on relative-strength considerations platinum should outperform the yellow metal over the next few months….

  • […] Despite geopolitical problems and the disruption of European gas supplies, West Texas Intermediate Crude closed 11.9% down on the week as the severity of the global recession raised fresh concerns about demand. Platinum (+6.2%) made up lost ground relative to its precious metal cousins, gold (-2.8%) and silver (-1.5%). (Also see my post “Picture du Jour: Gold or platinum?“.) […]

  • Frank W

    Platinum, Palladium, etc. are all more or less industrial metals. The Japanese favor platinum jewelry over gold jewelry despite this fact. I would guess that that is where the Chinese got the idea of buying platinum jewelry. Platinum is not suitable for use in jewelry making because it is not malleable or ductile like gold. It is difficult to work. This puts a rein on its use.

  • Dave

    There is a platinum ETF in The USA by the symbol of PTM.

  • Dave: Thanks for the comment. Also see an earlier remark saying that in addition to PTM (PTM-E-Tracs UBS Bloomberg CMCI Long Platinum ETN), there is also the PGM-iPath Dow Jones-AIG Platinum Total Return Sub-Index ETN. And for those feeling bearish, there is a PTD-E-TRACS UBS Short Platinum ETN.

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