Platinum is set to reach parity with gold after rallies in recent weeks sent the metal’s discount to gold to its narrowest in nine months, but it may be too early to declare platinum’s comeback since economic recovery remains weak, especially in Europe.
The spread between gold and platinum narrowed to just $8.50 an ounce, its smallest since last April, after platinum staged its biggest two-week rise in four months on growing expectations of a global economic recovery. On average, platinum has stood at a $190 an ounce premium over gold since 1985.
The sluggish global economy had dulled the shine of platinum, despite its scarcity and a market deficit caused by supply constraint from South Africa.
That picture may shift this year to platinum’s favour, as hopes grow that Europe may stabilise and the global economy embark on a steady path to recovery, lifting the outlook for metals used in industry.
“You have a metal which is more expensive to produce than gold, whose supply is not growing and whose market is expected to be in a deficit; such a metal should trade at a premium to gold,” UBS Wealth Management analyst Dominic Schnider said in Singapore.
But he cautioned that a return to a big premium in platinum would be unrealistic.
“We are going to make it to the parity and a possible $50 premium in platinum. But the global economy is still on a weak footing and it will be too early to call a $100 premium.”
The average production cost of platinum was about $1 600 an ounce, while the production cost of gold stood at $1 200 an ounce, he added.
Gold was fixed at $1 666.50 an ounce in the afternoon in London yesterday, down about 0.5 percent so far this year. Platinum was fixed at $1 658, up 7.5 percent so far this year.
Some analysts are less sanguine, citing the protracted dismal economic conditions in Europe. “I worry we might see a repeat of what happened last March,” ANZ senior commodity strategist Nick Trevethan said, referring to a short period of platinum’s premium to gold early last year.
“In order for platinum to hold a premium over gold, we need to see a little more strength in demand… especially from Europe.” – Reuters