Is It Time to Get into Platinum?
Source: MoneyWeek, Dominic Frisby (1/20/10)
". . .since the lows of October/November 2008, the metal has rallied tremendously. It has now more or less doubled."
Platinum is an astonishingly rare metal. It's often obtained as a by-product of nickel and copper mining. Some 80% of global production comes from the Bushveld—an area about the size of Ireland—near Pretoria in South Africa. The rest comes from the large copper-nickel deposits near Norilsk in Russia and the Sudbury Basin in Canada. There are also smaller reserves in the U.S., mostly in Montana.
Even though it's a precious metal, platinum's uses are largely industrial. So what drives the platinum price? Well let's start by looking at how it's behaved over the past decade.
Platinum spent the 1990s trading in a $350–$450/oz. range. Then in 1999, like practically every other commodity, it began to take off. In 2006, and again in mid-2007, it tested the $1,300 mark. Then, in late 2007 and early 2008, amid the South African energy crisis, it almost doubled again, reaching a high just below $2,200/oz.
Then the bubble burst. In just four months, platinum gave back four years of gains, dropping by about 65% to $774/oz. But since the lows of October/November 2008, the metal has rallied tremendously. It has now more or less doubled.
So what's the outlook now? A good start is to compare the platinum price to the gold price. During periods of sustained economic stability and growth, the price of platinum will trade at around twice the price of gold.
However, during turbulent times, demand for gold surges while industrial demand falls; so the ratio falls to about 1:1.
There is another specific issue to be aware of. As I noted earlier, most platinum comes from South Africa. So it's very vulnerable to problems there.