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Investors Switch From Gold to Platinum As Demand from Carmakers Increases
January 25, 2010

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Singapore. 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. Carmakers, the biggest buyers, will expand output 20 percent this year, said Evan Smith at US Global Investors, a fund manager.

“We are long platinum and short gold,” said Jonathan Barratt, a Sydney-based managing director at Commodity Broking Services, who predicted platinum’s rally in September. “Gold remains under pressure. As inflation moves lower and the dollar goes higher, gold isn’t as solid.”

Michael Widmer, a strategist at Bank of America-Merrill Lynch, raised his forecast for this year by 35 percent to an average of $1,750 and predicted $2,000 for 2011.Standard Chartered forecast platinum would be one of the year’s 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.

About 80 percent of the world’s platinum supply comes from South Africa, where power cuts shut mines in 2008 because the generators could not produce enough electricity to meet demand. Energy use may surge again in June and July when the nation is scheduled to host the football World Cup.

Production this year is at risk because “you’ve 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.

“Platinum prices should be double that of gold,” said Suresh Hundia, president of the Bombay Bullion Association, the biggest gold consumer. “It’s only about 40 percent more expensive. That means it has more room to rise.”



Bloomberg