Platinum ETFs More Expensive Than Gold on Supply Disruptions

ETF Trends

The platinum price temporarily surpassed the gold price for the first time in 10 months on Amplats’ platinum operations review.

Amplats announced a 400koz estimated reduction in production last week deriving from mine closures in an attempt to contain its rising costs. The potential loss in production is equivalent to 7% of total mine supply in 2012 and is expected to tighten result in further tightness in the platinum market. Supply side issues in South Africa are likely to remain the main platinum price driver in 2013.

Labor disruptions and production rationalization are likely to continue to tighten the supply-demand balance, as more companies follow Amplats’ example. With nearly 80% of the world’s supply of platinum mined in South Africa, supply disruptions and political hurdles in the country can significantly impact the price. [Platinum ETFs Rise Amid Coin Furor]

Thomson Reuters GFMS remains bullish gold in 2013, forecasting gold to average an all-time high over the first half of the year. The consultancy company published its latest Gold Survey 2012 update last week, with predictions for the first half of 2013. Despite the sell-off in the last quarter of 2012, Thomson Reuters GFMS expects that extremely accommodative monetary stance from the US Fed and other major central banks and continued sovereign debt concerns will remain in place and will return to the fore this year. While the market appears concerned the Fed may prematurely end its QE program in 2013, other central banks are flooding financial markets with cheap liquidity including the ECB, the Bank of Japan, and potentially more from the Bank of England with a new governor in 2013.

Gold hits one-month high as US policymakers continue debt ceiling negotiations alongside expectations of additional monetary stimulus. The gold price ended last week up 2% as US politicians continued discussions on the extension of the debt limit. Meanwhile, the Bank of Japan is widely expected to continue the global central bank flood of liquidity this week, generating further apprehension amongst investors over fiat currency debasement. Central bank policy is also expected to be supportive for gold in 2013 as foreign reserve diversification will likely remain a stable source of demand for gold in 2013.

Palladium demand receives a boost on expectations Chinese auto sales may accelerate 8% in 2013. China’s demand for automobiles has surged in recent years as rising per capita wealth combined with a large and growing urban population has led to a structural increase in auto demand. Palladium is a key component of autocatalysts used in the gasoline-engines which are predominant in the US and China. Rising China and US growth and high global liquidity will likely benefit palladium, relative to platinum, assuming that key economic tail risks are averted.

Chinese vehicle sales improve, providing a boost to palladium demand. Vehicle sales rose 4.3% in 2012, up from 2.5% in 2011. The China Association of Automobile Manufacturers expects sales to rise 7% in 2013. While the improvement does not match the double-digit growth seen in 2009 and 2010, the steady improvement is consistent with a soft-landing of the Chinese economy. Palladium is a key component of autocatalysts used in the gasoline-engine dominated auto markets of the US and China. With both US and China growth showing signs of recovery, palladium demand will likely benefit.

Key events to watch this week: BoJ rate announcement. The BoJ and Abe’s LDP party are expected to be considering making an open-ended commitment to assets buying activities until the 2% inflation target is in sight. If this were to happen, gold would likely benefit from the additional stimulus. [Japanese Yen ETF Weakens on Asset Buying Talk]

ETFS Physical Platinum Shares (PPLT)

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