Photographer: Tomohiro Ohsumi/Bloomberg

Rare Platinum Discount to Gold Inspires Bulls Seeing Slump's End

  • Metal-price gap widest on record going back at least 28 years
  • Platinum to trade above gold again in 2016, HSBC's Wen says

Despite all the bad news for platinum in 2015, one indicator shows the metal’s worst slump in four years may be over. It’s never been so cheap relative to gold.

The price of platinum used in auto catalysts and jewelry spent most of the past decade trading at a premium to the yellow metal, averaging 34 percent higher, or $273 an ounce. That changed this year as platinum plunged, creating a discount that earlier this month touched $228.60, the widest gap since at least 1987, data compiled by Bloomberg show.

Such a hefty spread signals a buying opportunity, because the discounts probably won’t last, according to Saxo Bank A/S. Prices are set to rebound next year, according to a Bloomberg survey of analysts. While both precious metals are popular with investors as a hedge, about 60 percent of demand for gold comes from jewelry makers. Platinum has a much wider spectrum of industrial uses, including catalytic converters, and laboratory and dentistry equipment.

“It’s highly unusual to see gold trading higher than platinum,” Howard Wen, a precious metals analyst at HSBC Holdings Plc, said from New York. "We expect platinum to trade above gold next year.”

Volkswagen Crisis

Platinum, used in devices that curb harmful car gases, particularly from diesel, was one of the casualties in the Volkswagen AG crisis. The metal lost 10 percent in September after the German carmaker admitted attempts to rig U.S. pollution tests for diesel models and is down 17 percent this year on waning demand. 

“It all depends upon whether one believes that the VW scandal marks the beginning of the death of diesel or if the eventual outcome will be a lot less radical for platinum autocatalyst demand,” Philip Klapwijk, managing director of Precious Metals Insights Ltd., said by e-mail. “Arguably the bad news is already in the platinum price.”

Platinum slumped as low as $892.50 an ounce on Oct. 2, only enough to buy 0.7924 of an ounce of gold, data compiled by Bloomberg show. That day, the ratio of gold to platinum reached a record 1.26. The drop in platinum will attract interest from financial traders and spur jewelry demand, Ole Hansen, an analyst at Saxo Bank, said by phone.

Gold was its most expensive relative to platinum on Oct. 2.
Gold was its most expensive relative to platinum on Oct. 2.

Gold may stay weak into next year as economic prospects improve and the Federal Reserve increases interest rates from near zero, dulling bullion’s appeal as a safe haven, according to Singapore-based Oversea-Chinese Banking Corp. The yellow metal will average $950 an ounce in the fourth quarter of 2016 while platinum is seen at $905, said Barnabas Gan, the most accurate gold forecaster based on data compiled by Bloomberg. The estimates are subject to revision if the Fed doesn’t raise rates this year, he said.

Platinum has been rallying the past two weeks, trading Thursday at $1,004.80. In a Bloomberg survey of analysts, platinum was forecast to reach $1,150 next year, and will extend that gain over the following three years to $1,400 in 2019.

"Platinum is at unsustainable low levels relative to gold, relative to vehicle sales in Europe and relative to the trends we’re seeing in jewelry demand in China," Mike McGlone, director of research at ETF Securities LLC, said by phone from New York. “We’re getting all the signals you would expect to see from a market putting in a bottom.”

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