In a year when almost all metals are falling, record car sales and mining strikes mean the best forecasters are favoring platinum over gold as investors lose faith in bullion as a store of value.
Platinum prices that were lower than gold in April, when bullion entered a bear market, cost 11 percent more on July 15, the most in almost two years. The current 8.5 percent premium will expand to an average 19 percent in the fourth quarter, according to estimates from the five most-accurate precious metals analysts tracked by Bloomberg over the past two years. Investors own a near-record amount in platinum exchange-traded products as gold holdings slumped to a three-year low.
The improving global economy is boosting car sales and demand for platinum used in autocatalysts as falling supply curbs output from South Africa, the top producer, to a 13-year low, leaving a shortage. About 60 percent of platinum demand is from industrial applications, compared with 10 percent for gold. Bullion prices are heading for the first annual drop in 13 years as investor demand wanes.
“On the platinum demand side, the feeling is that the worst is over and you’ve still got those supply-side issues,” said Tom Kendall, the analyst at Credit Suisse Group AG in London whose estimates have proved the most accurate over the past two years. “The worst period of crises for the global economy has passed and risks of another financial meltdown are subsiding. Something that is more of an industrial metal than an alternative currency like gold should outperform.”
Gold slid 21 percent to $1,325.15 an ounce this year as platinum lost 6.7 percent to $1,437.25 an ounce. Silver is the worst performer in the Standard & Poor’s GSCI gauge of 24 commodities, which fell 2.3 percent since the start of 2013, while industrial metals dropped at least 12 percent. The MSCI All-Country World Index of equities rose 10 percent and Treasuries declined 2.6 percent, the Bloomberg U.S. Treasury Bond Index shows.
Platinum will average $1,550 in the fourth quarter and gold $1,300, according to the median estimates from Credit Suisse’s Kendall, Bank of America Corp.’s Michael Widmer, TD Securities Inc.’s Bart Melek, Barclays Plc’s Suki Cooper and analysts at Commerzbank AG.
Gold slid to a 34-month low of $1,180.50 on June 28 on speculation the Federal Reserve will slow its $85 billion of monthly bond buying if the economy meets its forecasts. Unprecedented money printing that supported the U.S. financial system hasn’t spurred inflation, which usually triggers demand for gold as a store of wealth. Credit Suisse forecasts gold will average $1,150 in the second half of next year.
Investment and jewelry account for almost 80 percent of gold demand, the London-based World Gold Council estimates. Car companies are the biggest users of platinum, making up 40 percent of consumption, according to Johnson Matthey Plc in London, which makes one in three autocatalysts.
The canisters that convert car emissions into less harmful substances also contain palladium, which rose 3.9 percent this year. Global vehicle sales will rise 2.9 percent to a record 83.4 million this year and climb another 5.6 percent in 2014, according to LMC Automotive Ltd., a research company in Oxford, England.
General Motors Co., the largest U.S. automaker, said July 25 that second-quarter sales rose 3.9 percent. The Detroit-based company is bringing 18 new or refreshed vehicles into showrooms this year, adding to signs the industry is improving.
Platinum-backed ETP holdings rose as much as 22.7 metric tons this year, or 50 percent, and are now valued at about $3.13 billion, data compiled by Bloomberg show. Gold assets slid 662 tons, or 25 percent, wiping $57.8 billion from the value of the products.
Billionaire John Paulson owns the largest stake in the SPDR Gold Trust, the biggest bullion ETP. His PFR Gold Fund tumbled 23 percent in June, extending this year’s loss to 65 percent. Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc. and the third-richest investor in the Bloomberg Billionaires Index, said in May that gold has no appeal even after prices slumped.
Hedge funds and other large speculators cut bets on higher gold prices by 65 percent since October, U.S. Commodity Futures Trading Commission data show. They held a net-long 70,076 contracts on July 23, up from a six-year low of 31,197 on June 25. While bullish bets on platinum fell by 50 percent since mid-February, wagers are almost triple what they were in August.
Slower economic growth would curb demand for metals tied to industry. The International Monetary Fund trimmed its 2013 global expansion forecast for a fifth time on July 9 to 3.1 percent, unchanged from last year.
European car sales fell to a 20-year low in the first half as record unemployment in the countries using the euro hurt demand, the Brussels-based European Automobile Manufacturers’ Association said July 16. The region accounts for 25 percent of all platinum use, with European car companies the second-biggest source of demand, behind Chinese jewelers, Johnson Matthey says.
“The economy is really not that strong,” said Adrian Day, who manages about $135 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland. “If you look at platinum, you really want a stronger economy to make it really move, particularly in Europe.”
Carmakers are substituting in more palladium that’s 49 percent cheaper than platinum. Palladium accounts for about 30 percent of loadings in diesel vehicles, up from about 20 percent about three to four years ago, according to Mitsubishi Corp. International (Europe) Plc in London.
Most of the 171,300 tons of gold ever mined is still in circulation, and total supply exceeded demand every year since 2006, according to Morgan Stanley. In contrast, platinum use will exceed supply by 478,000 ounces this year, a second consecutive shortage, Barclays estimates. The deficit would be the largest since 2002, Johnson Matthey data show.
Global platinum production dropped 13 percent in 2012 as strikes disrupted mining in South Africa. Mine output in the African nation will decline 1.6 percent this year to the lowest since 2000, according to Barclays and Johnson Matthey data. Strikes caused almost 15 billion rand ($1.5 billion) in lost output in 2012, according to South Africa’s National Treasury.
About 5,600 workers at two Anglo American Platinum Ltd. mines stopped work this month, less than a year after violent strikes followed 34 deaths in a single day at Lonmin Plc’s Marikana mine. Anglo American Platinum, the largest producer, plans to cut 6,000 jobs, idle three shafts and reduce annual output by 350,000 ounces.
Amplats, as the company is known, earned 1.15 billion rand in the first half, following a loss of 450 million rand a year earlier. Shares of the Johannesburg-based company fell 21 percent this year. Shares of Barrick Gold Corp., the biggest bullion producer, plunged 50 percent in New York in 2013. South Africa accounts for about 73 percent of all platinum mined and about 6 percent of gold.
“Demand for platinum is very likely to move higher while supply is quite constrained,” said Melek, the head of commodity strategy at TD Securities in Toronto and the fifth-most accurate precious metals forecaster tracked by Bloomberg.
“We’ll see deficits for the next few years and have strong investor interest,” Melek said. “Gold tends to be a hedge for when things are really bad and when things stabilize you no longer may want to pay to hold that zero-yielding asset.”