Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Where’s my self-driving car? - 16th Aug 22
Real Reason why Pakistan and India Gained Independence in 1947 at 75th Anniversary - 16th Aug 22
Electronic Payments Can Benefit Your Business - Here’s How - 16th Aug 22
Qualcom Stock Market Harbinger - 12th Aug 22
Apple Exec Gets World's 1st iPhone 14 for Daughters 14th Birthday Surprise Present Unboxing! - 12th Aug 22
Steps to remember while playing live roulette online - 12th Aug 22
China Bank Run Protests - Another Potential Tiananmen Square Massacre? - 11th Aug 22
Silver Coin Premiums – Another Collapse? - 11th Aug 22
Gold-to-Silver Ratio Heading Lower – Setup Like 1989-03 - 11th Aug 22
Severe Stocks Bear Market: Will You Be Among the Prepared 1.5%? - 11th Aug 22
There's a Hole in My Bucket Dear Liza, UK Summer Heatwave Plants Watering Problem Song - 11th Aug 22
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Platinum Price Goes Ballistic; Gold to Follow?

Commodities / Gold & Silver Feb 20, 2008 - 08:39 AM GMT

By: Money_and_Markets

Commodities

Best Financial Markets Analysis ArticleNatural resources markets exploded higher yesterday. Crude oil closed above the $100-a-barrel mark for the first time. And platinum's move was even more dramatic ... the price soared to a record high of $2,173!

Watching platinum has been like watching a missile take off. The metal's run-up has been nothing short of astonishing — 41% so far in 2008 and about 75% in the past 12 months!


And as high as platinum is right now, some analysts are now calling for the metal to hit $3,000 per ounce by the end of the year!

I think what's happening in platinum could be foreshadowing of what will soon happen to other precious metals like gold. More on that in a moment. First ...

Zoom-zoom! Platinum goes ballistic!

What's Driving Platinum?

That's the question traders and end users are asking themselves right now. Is this a short-term blowout or a long-term shift in pricing?

Robin Bhar, a respected metals analyst at UBS, recently summed up the dramatic move in platinum this way:

"It's panic, panic, panic. If you are a platinum consumer, you are not going to sleep at night. The price move shows you the unprecedented nature of the market. People can see actual physical shortages somewhere down the road and prices moving away from them. It's not a case of just speculation. There is genuine demand coming through."

Other analysts say the platinum deficit could widen to more than 400,000 ounces by the end of 2008, compared with about 265,000 ounces in 2007. The market had a surplus of 65,000 ounces in 2006, following seven successive years of deficits. Inventories are at historically low levels.

There is no doubt that the supply/demand squeeze in platinum is real! Platinum prices are fueled by inelastic industrial demand as well as from investment demand. (Jewelry demand for platinum is pretty flat, and should go down as the price of the metal goes through the roof.)

The industrial demand is for catalytic converters for diesel engines. Until very recently, platinum was the only metal that could be used for this purpose, and the number of diesel vehicles around the world is growing dramatically. In 2000, diesel accounted for only 18% of global production of light vehicles. By 2007, 24% of vehicles were diesels.

And while there is no platinum ETF in the U.S., there is one in Britain. The metal held by London-based ETFS Physical Platinum (PHPT on the London Stock Exchange) rose by 42,000 ounces in a week to 267,000 ounces — an 18% climb in just one week. If growth continues at half of this recent rate, then the ETF will hold a million ounces in the fourth quarter of 2008.

THAT is how you get to $3,000-an-ounce platinum!

There Is Also a Crisis On the Supply Side

South Africa produces about 75% of the world's platinum, and it is in the grips of a power crisis that is punishing the mining industry.

Y/Y change in South African mine supply ('000oz)

The South African state power utility, Eskom, has to build enough power plants to keep up with South Africa's growing economy and increasingly plugged-in population.

Power demand has increased 50% since apartheid ended in 1994 as the government provided more homes with electricity. South Africa is also boosting infrastructure spending on roads, railways and stadiums as it prepares to host the 2010 soccer World Cup.

As a result, Eskom is now chronically short about 1.5 gigawatts of electrical generation (about 1 and a half good-sized power plants). Eskom expects the power outages to continue until at least 2013.

Eskom's solution is rolling power outages that result in about a 25% national power outage per month. In practical terms, this is a forced reduction in power usage of 10% for big users like mines. The mines were completely shuttered for five days last month!

This means on those days, the mines are unable to pump excess ground water from deep shafts while other maintenance programs are cut back. And how would you like to be a miner caught underground when random power cuts hit, stopping elevators and bringing ventilation to a halt? That kind of brown-out could lead to a deadly accident.

Bottom line: South African platinum miners were ratcheting down their production forecasts anyway, and the power outages are hastening the slide.

Sure, a lot more platinum is being recovered from junked catalytic converters. And new advances in fuel technology should allow palladium to substitute for up to about 25% of the platinum used in catalysts for diesel-powered engines.

But neither of these developments is going to completely solve the platinum crunch anytime soon. So platinum prices could go much higher.

More importantly ...

This Supply/Demand Squeeze Shows You How Quickly Metals Prices Can Soar! Here's Why Gold Might Be Next in Line ...

If $2,000 platinum is rocking the markets, imagine how shocking $2,000 gold would be? Well, we might not have to wait too long to find out.

Because the fact is, like platinum, gold has longer-term supply/demand fundamentals that are very bullish, including ...

  • Global gold production fell to a 10-year low of 2,444 metric tonnes in 2007, according to Gold Fields Mineral Service. This year production will likely drop again. While China is producing more gold — up 12% — South Africa's output is falling off a cliff, down 8.1%.
  • Exchange traded funds that hold gold are an important new force in the market. The most active gold ETF, the streetTracks Gold Shares (GLD), held 630 tonnes of gold at the end of January — more than the European Central Bank or China's central bank. What's more, a new gold ETF in India is planned for this year.
  • The U.S. Federal Reserve is likely going to keep cutting interest rates. This in inherently inflationary — and inflation is bullish for gold. We're already seeing more inflation in the U.S., with producer and consumer prices skyrocketing. And now we're importing inflation from China. U.S. import prices reached a record high in January, up 1.7% — twice as much as had been expected.
Gold is consolidating, and its next big move could be much higher.

The best part is that gold hasn't really taken off yet. Let me explain ...

Look at the chart I made. You can see that gold is consolidating after its most recent rally. I expect we could see more consolidation before gold takes off, but, when it finally breaks out, it should rally and rally hard.

So rather than chase platinum, I would use this consolidation to add to gold positions in anticipation of their upside breakout. That way, you're in before any meteoric rise!

Good luck and good trades,

Sean

P.S. Be sure to check out my daily commentary and charts on my blog at redhotresources.blogspot.com

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in