Platinum (PTM) is breaking out compared to gold (GLD) as South Africa, which
supplies three quarters of world production, continues to struggle with labor
issues and possible nationalization. Look for a major breakout of the platinum
to gold ratio at 104. Platinum (PPLT) is about to break into new 52 week highs
as demand increases due to the economic rebound in Asia, while at the same
time supply is under major pressure. Observe the chart below which shows that
the majority of production comes from questionable mining jurisdictions.
The world's largest producer of platinum, Anglo
American Platinum (AMS), reported a major loss for 2012 and warned of
a potential supply shortfall as labor protests and nationalization fears
continue to increase.
South Africa has become increasingly volatile and demand for platinum is picking
up due to increased sales for new automobiles. A supply shortfall in platinum
and potential price spike could happen in 2013 as a major deficit in PGM's
could be developing.
Last fall during the beginning of the South African mining strikes I
penned a bulletin on why platinum is providing investors a rare buying
opportunity not seen in more than 25 years.
I also forecasted that platinum's discount to gold will not last long as we
were in the beginning of a major rebound in the Far East and a risk on rally
in housing (XHB) and financial (XLF) stocks.
This could boost inflationary forces for monetary metals such as platinum
and silver (SLV) which also have a rising industrial use. When platinum and
silver begins outperforming gold as it has been doing recently this may forecast
that inflationary forces are beginning to take effect. This may also be bullish
for the undervalued junior miners (GDXJ) who perform better during risk on
cycles.
Platinum underperformed gold in 2011 and 2012 as a safe haven as a slowing
economy and deflationary forces in Europe and the U.S. favored the yellow metal
as a risk off investment vehicle.
However, that trend may be changing quickly as investors may be realizing
that the Central Banks have used massive monetary weapons to fight deflation
and that we are starting an inflationary cycle evidenced in the rebound in
the most toxic sectors which the government has been bailing out since 2008.
The platinum to gold ratio is making a significant breakout as platinum's
price moves above the price of gold. Investors who listened to our bullish
report on platinum a few months ago realize that platinum's discount to gold
was extremely unusual.
It happened before in 2008 and then back at the end of the year in 1996. Each
time this represented a great buying opportunity as platinum supply is extremely
tight and historically averages double the price of gold.
Of course in 2011 and 2012, the debt crisis in Europe and the U.S. led to
a major safe haven rally where gold outperformed platinum and silver. I wrote a
few months ago as soon as the strikes hit South Africa that we may be near
the bottom.
Remember over 90% of world platinum supply comes from Zimbabwe, Russia and
South Africa. These are not mining friendly jurisdictions.
This pressure on supply from Africa combined with a robust recovery in China
manufacturing may be the factor for the outperformance of platinum.
Remember the cost of mining platinum in South Africa is marginally profitable
at these prices as the costs are quite expensive as South Africa has the deepest
and most dangerous mines in the world.
The fundamentals for platinum appear to be stronger than that of gold as there
is great potential for lower mine supply from South Africa in 2013.
In conclusion, the price of platinum may be turning higher. Do not be surprised
for major miners to cut back on platinum investments in South Africa and look
for additional secure supply in North America where there are undervalued opportunities.
Disclosure: Author has no ownership of etf's mentioned and no
business relationships with ETF companies.
