Platinum Tramples Gold in 2012

Platinum Tramples Gold in 2012

Platinum outperformed gold in 2012. Gold ended the year with a gain of 7.1 percent, posting the weakest performance among the precious metals. Platinum, with a gain of nearly 10 percent, was the top performer in the complex. Since then, momentum driven by supply concerns has allowed platinum to reclaim its premium over the yellow metal.

Platinum’s performance is commonly driven by actual or perceived industrial demand, particularly from the diesel automotive sector. Given the deterioration of the global economy in 2012, Standard Bank has concluded that it was not industrial demand that drove white metals to outperform gold.

“Therefore, it must have fallen to investment demand, bolstered by continued monetary accommodation and global liquidity growth, to stage the turnaround seen in the past year,” the firm said in a note.

Platinum prices were certainly moved by more than a single factor over the course of last year, but a significant amount of the metal’s gains resulted from investors’ reactions to the platinum market story of the year: labor strikes at South African mines.

Holdings in platinum ETFs increased by more than 16 percent last year, with a notable surge in demand occurring in the third quarter. Net inflows into these products was $229 million during that period, when violent protests were spreading through South Africa’s platinum mining sector and beyond.

“Investors recognized the very large impact those labor issues could have on platinum supply — since around 80 percent of platinum is produced in South Africa — and they moved very aggressively into platinum,” Nick Brooks, head of research and investment strategy at ETF Securities, told Gold Investing News.

It also seems that investors used platinum ETFs to hedge against declines in some South African mining companies’ equities, he added.

Looking at the net speculative length of COMEX gold and NYMEX platinum reveals that gold fell short of a 10-percent increase, and thus had a meagre single-digit rise. Platinum, however, saw a three-digit increase of over 107 percent.

“Consequently, it appears as though futures market speculation has been the main impetus for the relatively better performance of white metals over gold this past year,” said Standard Bank.

Despite platinum’s overall performance for 2012, it did not end the year in a celebratory mode. December concluded with platinum posting losses of nearly $100 for the month after hitting a four-month low of $1,523. And when the tally was done for the fourth quarter, the results showed net outflows of $33 million from platinum ETFs.

Prominent US fiscal cliff concerns, an overextended futures market and sketchy industrial demand prospects brought platinum into the new year cloaked in skepticism.

However, sentiment has recently improved. Developments such as rising gold prices, an improved economic outlook and better-than-expected Chinese trade data have given the market a boost and improved confidence. Last week, platinum managed to break above $1,600 for the first time in 2013.

Most helpful to the platinum market was Anglo American Platinum’s (OTC Pink:AGPPY) recent announcement that it plans to close two of its South African mines, reducing its Rustenburg complex from five mines with nine shafts to three mines with five shafts. In implementing this plan, the company expects it production profile to decline by 400,000 ounces.

With some 14,000 mining jobs expected to be lost, this news prompted more strikes. It also renewed investors’ concerns about supply and the likelihood of deficits this year, which prompted a rally. The upward momentum drove platinum prices above gold prices, allowing the white metal to once again rise to the top of the precious metals complex.

Results from the London Bullion Market Association’s 2013 forecast, derived from a survey of analysts, reveal that platinum is expected to outperform gold again this year. The average price of gold in 2013 is expected to rise 5.1 percent above 2012′s average price of $1,669. Platinum’s average price is expected to rise 8.4 percent above last year’s average price of $1,552.

On Wednesday, gold’s closing price on the New York spot market was $1,680. Platinum finished the day at $1,686, maintaining its premium. On multiple occasions last year, platinum attempted to breach the $1,700 level, but failed. Market participants will be watching to see if that is a feat that can now be achieved.


Securities Disclosure: I, Michelle Smith, do not hold equity interests in any companies mentioned in this article.

Related reading: 

South Africa’s Platinum Miners Struggling

Zimbabwe Tax Focus Could Pressure Ailing South African Producers

Platinum Miners Bring Tense South African Labor Situation to a Head

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