platinum and palladium, page-5

A cut and paste from another HC thread today which is worth repeating (I have forgotten which thread I extracted it from) :

Jan. 25 (Bloomberg) -- Even after a record 57 percent rally last year, platinum is cheap relative to gold, signaling more gains as demand grows from carmakers and exchange-traded funds.

An ounce of platinum buys 1.42 ounces of gold, down 42 percent from the record 2.43 ounces in 2001 and 23 percent less than the 10-year average, data compiled by Bloomberg show. Automakers, the biggest buyers, will expand output 20 percent this year, said Evan Smith, who helps manage $2 billion at U.S. Global Investors. Hedge funds raised their bets 163 percent in 2009, about twice golds increase. ETF Securities Ltd. funds lifted holdings to a record 594,465 ounces.

We are long platinum and short gold, said Jonathan Barratt, the Sydney-based managing director with Commodity Broking Services Pty, who predicted platinums rally in September. Gold remains under pressure. As inflation moves lower and the dollar goes higher, gold isnt as solid.

Bank of America-Merrill Lynch strategist Michael Widmer raised his forecast for this year by 35 percent to an average of $1,750 and predicted $2,000 for 2011. Standard Chartered Plc forecast platinum will be one of the years best commodities. Prices may jump 55 percent to a record $2,400 by mid-year, said Joerg Ceh, head of commodity trading at Landesbank Baden- Wuerttemberg in Stuttgart, Germanys biggest state-owned lender.

Platinum, which advanced 0.3 percent to $1,554 an ounce at 4:20 p.m. in Singapore, is still down 32 percent from its March 2008 record, while gold sold for $1,098.80, within 10 percent of its peak last month. Buying platinum today and selling gold would return 30 percent, should the ratio return to the 10-year average of 1.84 times.

South Africa Risk

A rally in metals would extend gains in shares of Johannesburg-based Anglo Platinum Ltd. and Impala Platinum Holdings Ltd., the worlds biggest producers. Anglo soared to a 15-month high of 819 rand Jan. 5 and traded at 759.43 rand at 4:23 p.m. in Singapore. Credit Suisse Standard Securities Ltd., the joint venture of Credit Suisse Group AG and Standard Bank Group Ltd., raised the companies to outperform on Jan. 19.

About 80 percent of the worlds platinum supply comes from South Africa, where power cuts shut mines in 2008 because the generators couldnt produce enough electricity to meet demand. Energy use may surge again in June and July when the nation hosts soccers World Cup.

Production this year is at risk because youve got potential problems of electricity capacity coming out of South Africa, said Chad Walls, head of metals trading in the Asia-Pacific region with Fortis Bank in Hong Kong.

The Last Time

When the U.S. was exiting the 2001 recession, platinum and gold traded at a ratio of about 1.60 compared with 1.42 today. Platinum prices gained 70 percent in 2002 and 2003 and the ratio climbed to 2.30 in April 2004, data compiled by Bloomberg show.

Platinum prices should be double that of gold, said Suresh Hundia, president of the Bombay Bullion Association Ltd. in India, the biggest gold consumer. Its only about 40 percent more expensive. That means it has more room to rise.

U.S. Globals Smith is betting on platinum as the worlds worst economic downturn since World War II ends.

Weve seen growth coming out of the bottom of the recession and well see that develop into the economic rebound, said Smith, who oversees the $684 million U.S. Global Investors Global Resources Fund in San Antonio, Texas, which gained 68 percent last year. The benefit of holding platinum is that it has precious metals characteristics, but also a pretty good industrial component as well.

Autos Recover

Industrial uses, including the catalytic converters that strip pollution from automotive exhausts, represented about 70 percent of platinum demand in 2008, according to Johnson Matthey Plc. Industrial and dental usage made up about 11 percent of demand for gold, World Gold Council figures show.

U.S. auto sales will rise 20 percent to 12.4 million in 2010, the Ann Arbor, Michigan-based Center for Automotive Research said Dec. 15. China, which supplanted the U.S. as the largest market after vehicle sales jumped 46 percent to 13.6 million last year, may sell as many as 15 million in 2010, according to General Motors China Inc. President Kevin Wale.

Platinum may have a modest deficit in supply this year, according to London-based Johnson Matthey, the producer of about 33 percent of the worlds autocatalysts. An improvement in the economy may spur some recovery in automotive and industrial demand, it said in November. Demand for autocatalysts dropped by a third to 2.5 million ounces in 2009, the lowest level in nine years, it said.

World Growth

The fundamentals for platinum are turning around, said Evy Hambro, who manages the $13.9 billion World Mining Fund at BlackRock Investment Management Ltd. in London. Weve had a large exposure throughout 2009. If there were to be any weakness in the near term because of other factors, we would take advantage of that and add to our portfolio.

The International Monetary Fund said in October the global economy will expand 3.1 percent this year after a 1.1 percent contraction in 2009. The advance of precious metals, especially gold, has been driven by investors seeking refuge from an 8.5 percent slump in the Dollar Index in the past year and concern that government spending will worsen inflation.

The dollar rallied 0.5 percent against the six-currency basket this month after a 4 percent jump in December. The U.S. annual inflation rate was 2.7 percent in December.

Florian Siegfried, chief executive officer of Precious Capital AG, called the rally an overreaction on concern the global recovery may not be sustained.

Question This Recovery

The MSCI World Index of 23 developed nations stocks fell 3.8 percent last week, the biggest decline in almost three months, after European officials called on Greece to take steps to shore up its deteriorating finances, China curbed lending to prevent its economy from overheating and U.S. President Barack Obama announced plans to limit the size of the nations banks.

Platinum and palladium depend on industrial usage, said Siegfried, based in Zurich. What we see is that investors are very bullish that stimulus packages will eventually turn around the economy and that demand for those metals will increase. We question this recovery. The fundamental for gold is more comfortable in the long term.

Even with the risks to the economy, demand from new investors is increasing. In the U.S., stock exchanges offered securities this month backed by physical platinum and palladium for the first time. The ETFS Platinum Trust held 149,924 ounces as of Jan. 21, according to the ETF Securities Web site. Thats about equal to nine days of world production.

ETF Holdings

The firms exchange-traded funds in Europe and Australia increased holdings 2.2 percent this year to a record 444,541 ounces, the Web site said. The companys gold pile shrank 0.6 percent, it said.

Hedge funds and other large speculators held a net 19,259 contracts betting platinum would rise at the end of 2009, up 163 percent from a year earlier, surpassing golds 83 percent gain, according to U.S. Commodity Futures Trading Commission data. As they amassed that position, platinum climbed 62 percent from its 2009 trough.

Prices have obviously come a long way from the lows, said Dan Smith, an analyst at Standard Chartered in London. But I think theres a strong case were going to see significant upside from here still.

To contact the reporter on this story: Kyoungwha Kim in Singapore at [email protected] Nicholas Larkin in London at [email protected]

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