Gold Premium Over Platinum Seen Rising to Record

Gold’s premium to platinum, already the biggest in almost two decades, may surge to the highest on record in the next year because of investors’ mounting concern about the global economy.

Gold cost 3.1 percent more than platinum in London yesterday, compared with an average discount of 39 percent over the past decade, data compiled by Bloomberg show. The metal may reach a premium of 26 percent in the third quarter of 2012, according to David Wilson of Societe Generale SA in London, the most accurate platinum, palladium and silver forecaster tracked by Bloomberg over two years. That would be the highest in data compiled by Bloomberg going back to 1987.

Prices are converging for the first time since the global economy was in recession in 2008 as investors seek a haven from slumping stock markets and slowing growth. Platinum is down 8.6 percent for the year because 58 percent of supply is used in industry for catalytic converters, glass and chemicals. Gold rose 17 percent and investors in exchange-traded products hold $119.6 billion of the metal, about 53 times more than in platinum, data compiled by Bloomberg show.

“The ratio is indicating that markets are still concerned about a global recession,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, and the most accurate platinum forecaster so far this year in a survey by the London Bullion Market Association. “That’s weighing far stronger on platinum than it is gold.”

Gold advanced to $1,663.15 an ounce this year, reaching a record $1,921.15 on Sept. 6, and platinum is at $1,617.75 an ounce. Gold will average $2,350 and platinum $1,860 in the third quarter of next year, Societe Generale estimates.

GSCI Advances

The Standard & Poor’s GSCI gauge of 24 commodities fell 4.8 percent this year. Gold was the best performer, beating silver, which rose 4.5 percent. The MSCI All-Country World Index of stocks retreated 16 percent, with almost $12 trillion of market value erased since May, data compiled by Bloomberg show.

Treasuries and gold have become havens for those seeking to protect their assets from the threat that economies will drop back into recession. Treasuries maturing in 10 years or more returned 30 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The U.S. Mint sold 112,000 ounces of American Eagle gold coins last month, the most since January.

Gold is in the 11th consecutive year of its bull market, the longest in at least nine decades, after investors accumulated 2,236 metric tons of bullion in ETPs. That exceeds all except four central banks’ reserves, data compiled by Bloomberg show. HSBC Holdings Plc expects gold to average $2,025 next year, compared with $1,875 for platinum, an 8 percent premium.

Platinum Jewelry

When prices converged in 2008, platinum more than doubled in the following 16 months, outpacing gold’s 38 percent advance, as economic growth rebounded. Consumers bought 36 percent more platinum jewelry in 2009 than a year earlier, the most since at least 1975, Johnson Matthey Plc data show.

Investors remain bullish on platinum and are holding almost a record amount through ETPs backed by the metal. As gold ETP holdings rose 3.4 percent this year, platinum assets climbed 16 percent to 43.5 tons, and set an all-time high of 45.2 tons on Sept. 7, data compiled by Bloomberg show. While gold is within 11 percent of its record, platinum would have to climb another 36 percent to reach the record $2,301.50 set in March 2008.

Central Banks

Demand for gold may weaken should governments and central banks shore up growth. U.S. President Barack Obama proposed this month a $447 billion plan to create jobs and the Federal Reserve this week said it will act to lower long-term borrowing costs to prevent the economy from sliding into another recession.

“If governments add more fiscal stimulus to support economic growth, the ratio will rebound as platinum will be supported more than gold,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Back in December 2008, when the ratio traded below parity for a short time, Asian jewelry consumers started to prefer platinum over gold and that may happen again.”

Economists are becoming increasingly bearish, with their median estimate for this year’s U.S. growth dropping to 1.6 percent, from as much as 3.2 percent in February, according to 66 predictions compiled by Bloomberg. The International Monetary Fund cut its global growth forecasts to 4 percent for this year and next on Sept. 20, compared with earlier estimates of 4.3 percent for 2011 and 4.5 percent in 2012.

Industrial Demand

Slowing growth hurts platinum more than gold because 58 percent of platinum is used in industry, compared with about 12 percent for gold, the World Gold Council in London estimates.

The average auto catalyst contains 4 grams (0.13 troy ounces) of platinum, palladium or rhodium, according to London- based Johnson Matthey, which makes one in every three of the devices. The canisters have honeycomb-like surfaces that convert emissions into less harmful substances and are installed on about 95 percent of new passenger vehicles.

Demand for platinum fell for two consecutive years through 2009, the worst losing streak in a quarter century, according to Johnson Matthey. Consumption by makers of autocatalysts slumped 47 percent over the period and the chemical industry used 31 percent less, the data show.

Investors bought almost 961 tons of gold through ETPs in those 24 months, worth $53.6 billion at today’s prices. The 2,236 tons now held in ETPs exceeds the reserves of any country other than the U.S., Germany, Italy and France, according to data compiled by Bloomberg.

Central Banks

Buying also came from central banks, which in 2009 expanded their combined reserves for the first time in 21 years, International Monetary Fund data show. The 1.7 percent gain was the biggest in almost four decades.

Gold will trade at a 5.5 percent premium to platinum in the first quarter, rising to about 12 percent in the two following quarters, Barclays Capital estimates.

BNP Paribas SA anticipates near-parity until the fourth quarter of 2012, when platinum will once more trade at a premium. Anne-Laure Tremblay, a London-based analyst at the bank, was ranked by Bloomberg as the third-best forecaster across all precious metals in the past two years.

“Fear drives gold and at the moment there’s a lot of fear,” Societe Generale’s Wilson said. “Gold is far more of an investment metal, a speculative metal and a safe haven. Central banks buy it as a store of value and it’s a proxy currency. Platinum isn’t any of those things.”

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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