Platinum May Catch Up to Gold with Improving Auto Market


". . .we expect platinum can catch up and outperform gold in the medium-term."

Gold price retreats after rising four consecutive days to as high as $942.3 yesterday as USD pares losses. However, other precious metals continue to climb higher with silver rising to $13.27 and platinum to $1,161.

The platinum-to-gold ratio remains at 1.2, suggesting platinum has underperformed gold compared with historical average. While we remain long-term bullish on gold as well as other precious metals as global central banks will maintain low interest rate stance, we expect platinum can catch up and outperform gold in the medium-term. Power outage in South Africa remains a problem affecting production in mining companies.

Reports showed that output dropped -14.5% yoy in May as companies such as Anglo Platinum shut down mines. The issue has been intensified by the biennial wage negotiations. The National Union of Mineworkers (NUM), the biggest labor union in South Africa, demanded a double-digit wage increase from Anglo Platinum and Impala Platinum. The latest news reported that the labor union may lower its +15% pay rise demand from Anglo Platinum while for Impala, NUM declared a dispute in late June as the world's second-largest platinum producers offered only a +6.5% pay rise as a response to the group's +20% increase.

Use of platinum is concentrated in the auto sector as autocatalyst. Therefore, for the platinum price to stage a significant rebound, a turnaround in the auto industry is a necessary condition. After collapses of 'old' Chrysler and GM, we do see some signs of recovery in the sector. Yesterday, the ACEA reported the first-in-14-months increase in new car sales in June in Europe. Apart from that, vehicle sales in China also surged and carmakers, such as Hyundai Motor, announced to lift the car sales target in the third-largest economy in the world.

Moreover, ETF investment in platinum remains robust while that for gold has shown signs of sluggishness recently.

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