Platinum is approaching parity with gold for the first time in years, but fundamentals may soon drive the metals apart again
Platinum is approaching parity with gold for the first time in years, but fundamentals may soon drive the metals apart again.
Gold and platinum prices have not been on par for more than a decade. Over the last five years, platinum has usually been around double the price of gold.
But after sharp falls in platinum, and a relatively stronger performance in gold, the two metals have traded much more closely. By 0800 GMT on Monday, platinum was quoted at $927.00 an ounce, while gold was at $829.70 an ounce.
"Gold will outperform in the current environment because it doesn't have the weighting towards use in industry that the platinum group metals and silver have," Mitsubishi precious metals strategist Tom Kendall said.
"The PGMs in particular are being heavily influenced by a marked slowdown in activity in the automotive industry in particular and gold doesn't really have such close links to industrial applications."
But the closeness of the two metals may be short-lived.
Traders say a relationship between the two approaching parity is usually a sign to sell gold and buy platinum, as the first is likely to be overbought, or the second oversold.
While gold's appeal as a haven may support the precious metal for the moment, a recovery of the dollar from record lows against the euro and falling oil prices may limit gains.
Conversely, platinum could have more scope to move higher after significant losses.
"There has been good buying in the platinum even as it moved lower," said Ralph d'Esposito, a NYMEX floor trader with RJ Futures in New York. "The funds are either outright long platinum, or they are buying it against gold."
Gold and platinum have behaved very differently during the credit crisis, reflecting a diverse reaction to growth risks.
As an asset usually seen as a safe store of wealth, gold has benefited from a flight to safety as equity markets have slipped, and is one of the few commodities to have largely held its value in recent weeks.
Prices of metals used in industry, such as copper and tin but also platinum, palladium and silver, have slipped sharply as investors fear slowing economic growth will affect consumption.
Fears over falling demand have knocked platinum down nearly 60 percent from the high of $2,290 it hit in March.
The metal is vulnerable to weakness in the automotive sector, which has been hit by falling sales. Around half of annual platinum demand comes from carmakers, who use the metal as a component in catalytic converters.
However, analysts say the sell-off that has knocked platinum down by more than a third in two months may have been overdone.
The electricity shortage that cut output from South Africa - source of four out of five ounces of the world's platinum - earlier this year may still affect prices, they say.
"There are some positives for platinum," said Standard Chartered analyst Daniel Smith. "The problems in South Africa have been underestimated, and the downturn in the auto sector is worrying but not as bad as people might think at first glance."
In addition, falling platinum prices may reignite demand for the metal from jewellers, who, according to metals consultancy Johnson Matthey, consume more than 20 percent of the metal.
Conversely gold, while well supported by safe-haven demand, is vulnerable to downward pressure from its two main external drivers, oil and the dollar.
Oil has slipped by more than a third from the highs it hit in July, while the dollar has moved off the lows it hit against the euro earlier this year and has taken on a much firmer tone.
A recovery in the dollar would reduce gold's appeal as an alternative investment to the U.S. currency, while a slide in crude prices will curb buying of gold as an inflation hedge.
"Falling euro and crude oil prices will contribute to weakness in the precious metals," said Peter Fertig, a consultant at Dresdner Kleinwort. "Even the safe haven status of gold may not prevent it from trading lower."
Any sign that the current crisis in the financial markets is easing is likely to take key support away from gold.
Buying of exchange-traded funds backed by physical gold have been strong in recent months, but as other assets become more attractive, investment may flow away from the metal.
"The strength of buying of physical gold and physically backed gold ETFs has been quite marked over the last couple of weeks," said Mitsubishi's Kendall. "One wonders how long a lot of that money will stay in gold once the financial sector stabilises."