Platinum was once the most precious of metals. For decades, it traded at a premium to gold. The other platinum group metals – palladium and rhodium – barely registered on investors’ radar screens.
Platinum lost its crown to gold in 2015. It was overtaken by the other PGM metals in recent weeks.
Given that platinum, palladium, and rhodium demand is largely driven by automobile manufacturing and the production of catalytic converters, one of these things is likely true; platinum is currently undervalued, or the other two have gotten ahead of themselves.
Which one is the correct assessment will depend on whether the current optimism for economic growth in both developed economies and emerging markets has been well placed. Either way, investors inclined to speculate on the PGM metals have some interesting market action upon which to trade.
Platinum does look remarkably underappreciated. It is hard to imagine it trading at a significant discount for too long.
Auto makers should bid for whichever metal offers the lowest cost as all three are somewhat interchangeable.
Platinum offers the largest and most liquid market of the group. It is widely available in a variety of coins and bars. For investors, platinum’s liquidity is a consideration.
However, momentum traders may want to take a look at rhodium. It is traded in relatively tiny quantities and has a history of making big moves. Rhodium saw a top near $4,000 in the early 1990s and it made a run north of $2,000 about 10 years later. It peaked at $10,000 per ounce in 2008.
Although rhodium has doubled in the past year, it currently trades just over $1,300.
The metal’s pattern of having a sharp spike roughly once every 10 years is interesting. It is possible we are in the middle of another of those massive moves now.
Rhodium is available primarily in 1 ounce bars. While the quantity of rhodium traded is by far the lowest among precious metals, market liquidity for that metal has seen a boost since 2008. There are now a couple of ETFs focused on the metal. Those ETFs may in fact be driving a good portion of the recent demand.
*About the Author:
Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.
Editor’s note: The Platinum Group Metal pricing patterns are primarily based on supply/demand fundamentals, not on rarity of the metals in the earth’s crust. Rhodium and palladium are running high as they are both in a substantial supply deficit situation while platinum supply and demand are much closer balanced. Palladium, with a little rhodium, is currently the preferred catalyst for gasoline-powered internal combustion engine emission control catalytic converters, having largely succeeded platinum in this usage, but this was due to palladium being substantially less costly than platinum – that is until palladium’s (and rhodium’s) recent run. The big question now is: is platinum, being the cheaper metal, going to make a dent in palladium’s current predominance as the catalytic metal of choice for gasoline powered engines. It is already the dominant catalytic metal for diesel exhaust emission control.
I’ve been a little lax about linking here to my articles published on the Sharps Pixley website but here are links to six I have published so far this month. They look at the gold and silver markets as well as pgms. Click on the titles to read the full articles. To keep up with my thoughts on precious metals, and a whole host of other precious metals news stories from around the world, take a regular look at info.sharpspixley.com
13 Jul 2017 – Indian gold imports this year have already surpassed the full year 2016 level, but its probably best to ignore some of the year on year growth media hype given how low the figures were for H1 2016.
12 Jul 2017 – Any impact on the supposedly temporary enforced closure of Tahoe Resources’ Escobal mine, the world’s second largest primary silver mine by Guatemala’s supreme court may only have a very limited impact on global silver fundamentals and the metal price.
04 Jul 2017 – After a blip in May, Chinese gold demand as represented by Shanghai Gold Exchange withdrawals is now a little higher than at the same time a year ago, but still well down on the record 2015 figure.
The best performing precious metal for the week was palladium, up 3.57 percent. Speculators have been piling into platinum and palladium futures, largely based on improved car sales in China, but position sizes are approaching all-time highs for both metals.
Gold investment in the first half of the year broke previous levels, as seen in the chart below, with both coin and bar demand, as well as ETF product demand, soaring to record levels. Gold demand will get another boost in India as wedding season starts to heat up, particularly with the metal currently trading at a $40-$50 discount in the country, reports Bloomberg. Bullion traders noted persistent buying by jewelers at domestic markets to meet festive season demand.
Gold got a boost on Thursday on dollar weakness following the release of the Fed minutes, which showed that U.S. interest rates should stay low. According to futures prices compiled by Bloomberg, the odds of an increase in borrowing costs in December fell to 49 percent from 51 percent a day earlier. “From looking at the data, and looking at the minutes, I don’t think we’re any closer to a rate increase,” Chris Gaffney, president of EverBank World Markets said.
The worst performing precious metal for the week was silver with a 2.05 percent fall, of which most of the losses came on Friday when we had renewed strengthening of the dollar.
There have been a number of mixed signals from Federal Reserve policymakers this week, sending gold lower on Friday. The jawboning from these officials include a comment from New York Fed President William Dudley, for example, who reinforced his confidence in a possible rate hike for the second time in a week, reports CNBC. Bullion for immediate delivery fell 0.5 percent an ounce in London, reports Bloomberg, as other officials say the U.S. is strong enough to warrant an increase in interest rates sooner than markets expected.
Gold consumption in China fell during the first half of the year, primarily due to a surge in price by 24.6 percent, reports Bloomberg. The Asian nation did keep its top spot as the world’s leading gold producer, however, for the ninth-straight year. Similarly, as the foreign currency crisis deepens in Venezuela, the country’s international gold reserves slumped 25 percent in the first half of the year as they swapped gold for dollars.
According to a piece from SmarterAnalyst.com, the FOMC members see the futility in their tools and announced this week that the Fed is rethinking its monetary stance. President of the St. Louis Fed James Bullard explains that the old model was a long-run equilibrium which averaged past economic variables. The new model, however, includes a set of possible regimes that the economy may visit and are not forecastable. The Fed’s new framework would be positive for gold, the article continues, as it would lower market expectations of interest rate hikes and support the price of the shiny metal. It makes the Fed even more agnostic and less inclined to provide clear guidance.
CNBC reports that gold’s relationship with stocks reached an all-time low in the 60 sessions through Wednesday’s close. The correlation between gold futures and the S&P 500 was -0.63, the lowest ever between gold and stocks based on CNBC analysis of Factset data going back to 1984. This could be a reason for many investors to buy gold, as the “two unrelated assets will together have a smaller amount of volatility than two identical assets, all else being equal.”
Global central banks dumped a record $335 billion in U.S. debt over the past year, according to an article from Zero Hedge. While the author points out his expectation that Saudi Arabia would be one of the biggest sellers (or other “petrodollar-reliant nations”), China, Japan and Hong Kong were the largest sellers of Treasuries in June. The largest buyer in June was the Cayman Islands with purchases of $28.3 billion – another name for “hedge funds,” the author states.
As Islamist militants pose a growing threat at mines in Burkina Faso, the government announced plans to deploy more than 3,600 soldiers and police to secure its mines, reports Bloomberg. According to Francois Etienne Ouedraogo, the head of the National Office for Securing Mining, the police and soldiers will be “deployed gradually” at the 18 mine sites in Africa’s fourth-largest gold producer. In a report from the IMF last June, the group said that fragile security is one of the main threats to the nation’s economic outlook.
Gold equities have re-rated to historical peaks or above, reports Morgan Stanley, with an average 24 percent upside to spot gold already priced in. Similarly, analysts at UBS believe that mining stocks have priced in the gold bull run, and that the underlying metal provides more upside than the stocks. Despite gold being one of the top performing assets year-to-date, the metal’s 26 percent gain pales in comparison to the 110+ percent average lift across the senior producers, UBS continues.
A piece from All Africa Global Media this week points out that the lethal toll of informal gold mining is on the rise. Although deaths at formal mines have come down (fatalities numbered 77 in 2015, making it the least deadly year on record), “zama-zama” or informal fatalities have gone up. By 2015, the official number of informal mining fatalities reached 124 (a 150 percent increase in reported informal mining deaths from three years prior).
We often cite the gold: silver ratio as an indicator for the precious metals markets. When the ratio is high (gold is relatively strong versus silver), that typically corresponds with a cyclical low area in precious metals prices. When the ratio starts narrowing (silver gains strength versus gold), that typically corresponds with a cyclical bull market in precious metals.
The gold:silver ratio hit a multi-year high of over 83:1 earlier this year. It has since come down to 73.4:1, as of Friday’s close, as silver has gained strength in this year’s rally. On a historical basis, silver remains a relative bargain compared to gold. The ratio has much further to fall in a major bull market.
Another important ratio is that of gold to platinum. To gauge whether platinum is trading at a premium or discount to gold, we can simply reverse the ratio. This year platinum traded at its deepest discount to gold since 1982. The platinum:gold ratio currently comes in at 0.8:1, meaning an ounce of platinum sells for 80% of what an ounce of gold commands.
Platinum:Gold Ratio, 1980 to Present
As a general rule of thumb, platinum is a great bargain when it sells for less than gold. As the chart shows, the platinum:gold ratio periodically gets drawn back like a magnet to price equilibrium at 1.0. It’s not a law that platinum must return to equilibrium with the gold price or spend more time than not exceeding it. It just happens to be a strong tendency supported by sound fundamental reasons, including platinum’s supply scarcity.
When platinum’s discount gets to a multi-decade extreme, as it is now essentially, then precious metals investors have an incentive not only to favor platinum over gold – but to trade out of gold for platinum.
We certainly don’t recommend giving up a core position in gold. Gold has unique qualities as the ultimate, most recognized form of money. However, for those who have accumulated an outsized position in gold and hold little or no platinum, now may be an opportune time to trade some gold for some platinum.
Let’s take an example to illustrate the potential profit opportunity. You sell 10 ounces of gold (10 x $1,275 = $12,750), then use the proceeds to buy 12 ounces of platinum (12 x $994 = $11,928). In this example, based solely on the latest closing spot prices, you’d still have $822 cash left over. (In the real world, bid/ask spreads, premiums, and small transaction costs would apply.)
Let’s assume you wind up getting an exact even exchange of 10 gold ounces for 12 platinum ounces. Three years later, the ratio has risen from 0.8 to 1.2, around the historical average. Gold now trades at $2,000/oz and platinum 1.2 times that at $2,400. The ten gold ounces you sold would be worth $20,000. The 12 platinum ounces you bought are now worth $28,800. Thus, trading the platinum to gold ratio boosted your precious metals wealth by 44%!
This hypothetical should not be interpreted as a prediction of future price outcomes. It’s merely an illustration of one type of scenario that could play out.
As readers of lawrieongold.com will already know, I also write for other websites and usually the terms of so doing are that I can’t publish those full articles here as well – but I can publish synopses and links so you can read the full articles on the other sites.
So here are a couple of articles I’ve published over the past couple of days on Sharpspixley.com
The first is an article on palladium the metal virtually all the mainstream analysts reckoned would be the best performing precious metal last year – but it turned out to be the worst performer in the precious metals complex – so don’t believe what the mainstream analysts tell you. They are wrong probably as often as they are right!
In its latest weekly newsletter to clients, London’s Metals Focus consultancy looks at palladium’s almost horrendous fall from grace pricewise and asks the question : Palladium’s dismal performance: buying opportunity or trend?
Indeed palladium is a terrific example of markets trumping analysts and that in these days of High Frequency Trading and enormous speculation on the futures markets, it is other factors than fundamentals that really move the prices in a relatively small market like that for palladium. Last year virtually every precious metals analyst out there was predicting that palladium would be by far the strongest performing precious metal as its fundamentals looked so positive. In the event it was about the worst performer of all. You can’t rely on the analysts to make you money in these hugely manipulated markets where futures, coupled with high frequency trading, and a major degree of investor sentiment, really call the tune…..
To read the full article on Sharpspixley.com click here
The second looks at the Gold:Silver ratio and the silver price, and how it is very much tied to gold’s performance, but with more volatility.
The gold:silver ratio (GSR), much followed mainly by silver investors convinced that one day it will come down to its reputed historical level of 16:1, remains languishing in the high 70s. Personally I doubt whether we will ever see the 16:1 level again – certainly not in my lifetime (but I am getting old!) Apart from the very brief silver price spike when the Hunt Brothers tried to corner the silver market (and almost succeeded before being brought down and bankrupted) the GSR has moved since then in the range of 31.5 (a very shortlived spike downwards coinciding with the brief silver price peak in April 2011) and close to 100. As I write it is standing at 77.6.
Silver, sometimes known in the trade as ‘the devil’s metal’ is renowned for its price volatility. The fact is, that in most views, it can no longer be really considered a monetary metal per se. There is, though, still a substantial trade in officially issued silver coins which does, I suppose, give it some kind of monetary credibility although the sale value thereof tends to be substantially higher than any face value that may be put on them. They are minted very much for the investment market. But overall principal global demand for silver is industrial so the price movement relationship with gold is not necessarily a logical one – but it is ongoing nonetheless….
London bullion dealer, Sharps Pixley, one of the oldest names in the business whose roots go back to 1778, has opened London and the UK’s first bullion showroom in the heart of one of the UK capital city’s most prestigious business and shopping areas at 54 St James’s Street, around 100 yards from Piccadilly Circus. The state-of-the-art premises, which officially open today (the 14th January), will allow investors access to fine quality precious metals (gold, silver, platinum, palladium and rhodium) in a variety of forms. Investment products will range from 1 gram sizes up to 400 ounce market bars as well as coins minted around the world. The shop also stocks an exclusive collection of jewellery, watches and gifts in high purity gold.
The showroom is hugely impressive – a real standout look in this most exclusive area of London. In addition to the bullion and other sales facilities noted above it also provides world class vaulting arrangements plus 2,500 safe deposit boxes enabling clients to store their purchases, or alternatively offering peace of mind for any other valuables they wish to store in absolute security. Investors who purchase gold and hold it on the premises are exempt from v.a.t. as long as it remains there.
As Ross Norman, Sharps Pixley’s CEO, says. “There is a strong case for owning gold as a long term store of value, especially during periods of economic uncertainty and geopolitical tensions. It is our mission to make precious metals both more visible and accessible here in the UK. Gold has exhibited a four thousand year track record of wealth preservation and offers investors protection or insurance against economic crises”.
London is considered by many as the global epicentre for gold trading at the professional level but in spite of this, physical metal has never in the past been so readily accessible to every day investors in a proper showroom in the UK.
The company’s team of experts will be on hand to offer information and advice to all manner of clients, from institutional investors to first time buyers, as the business is already famed for providing best-in-class information on precious metals. Immediate information is also available on the Sharps Pixley website – www.sharpspixley.com
The showroom also boasts a range of gold bullion testing equipment to verify the assay of the gold and to facilitate the purchase of metal back from clients. It is all in the name of giving investors unparalleled confidence in the quality of the metals they purchase.
None of this would have been possible without the support of Sharps Pixley’s parent company, Germany’s Degussa Goldhandel which reckons to be one of the world’s biggest bullion dealers. Degussa acquired the Sharps Pixley business just over five years ago. The German parent already successfully operates 14 similar showrooms in cities across the world including nine in Germany, two in Switzerland and has more recently opened up in Madrid and Singapore. Chief Executive of Degussa, Wolfgang Wrzesnoik-Rossbach, is confident that expansion into the UK will mark a huge shift in the business. He said “Having a presence in the UK is absolutely paramount to our ambitions. London is one of the biggest professional bullion markets in the world and we are uniquely positioned to extend the experience we have gained in democratizing gold, or making it available to ordinary investors in Germany by successfully growing our business to our colleagues in London.”
Sharps Pixley is now the only London-based bullion trader providing retail physical precious metal bars and coins on the High Street to UK investors with secure storage solutions. In addition to the new showroom, Sharps Pixley also offers an online web shop where customers can purchase bullion and which provides an information platform where customers can browse precious metals news, research and analysis. The website is also a great source for precious metals news and comment, some written by Sharps Pixley personnel, and offers instantaneous gold price information during global trading hours.
Parent Degussa Goldhandel also issues its own gold bars that depict the world-renowned “Sun and Moon” official stamp. The standard range of 4 cast and 9 minted Degussa gold bars comprises – Cast: 1000 g, 500 g, 250 g, 100 g; Minted: 100 g, 50 g, 20 g, 10 g, 5 g, 2.5 g, 1 g, 10 oz, 1 oz The bars are manufactured in Switzerland by two of the world’s major gold refiners, Argor-Heraeus SA and Valcambi SA.
Sharps Pixley is a full member of the London Bullion Market Association (LBMA) and a member of the International Precious Metals Institute (IPMI).
Day 2 of the LBMA conference in Vienna and one of the most interesting presentations, given perhaps no-one else had anything good to say about pgms and platinum in particular, was one from Peter Duncan of Johnson Matthey. He described recent media reporting on diesel powered vehicles, particularly in the light of the recent VW emissions testing manipulation scandal, as being both irresponsible and irrelevant. Irresponsible because most of the problems highlighted in the media are being addressed by the manufacturers and the regulators, and irrelevant as diesel powered vehicles are absolutely essential for the automotive sector to meet greenhouse gas emission standards.