Investors—Should You Consider Platinum?
Traditionally, platinum has traded for more than gold, but in the fall of 2011, we saw this ratio hit a low not seen in over 25 years. Several factors have been against precious metals in 2011 and platinum specifically. The first is the flight to safety in gold, with its higher levels of liquidity. In times of stress, liquidity is highly valued.
Since 3/4 of all platinum comes from South Africa, currency moves are a huge driver for the production and sales of precious metals. As we’ve seen the rand strengthen in 2010 and into the early part of 2011, this has caused fewer sales, as the price of platinum went up. Since the fall, however, we’ve seen the rand depreciate against the U.S. dollar, which bodes well for platinum.
Platinum is used in automotive production primarily in catalytic converters. Auto sales were thought to have gone over the cliff, but in fact we’ve been seeing signs of a rebound. Auto sales were up five percent in 2011 and a further increase of four percent was expected in 2012. For the first time, emerging markets are going to surpass developed nations in auto sales. Even with that growth, sales in the U.S. have rebounded dramatically since 2009, when 10.4 million vehicles were sold up to an estimated 13.5 million units in 2012.
Yes, but you might say that the world economies are weak, so is this the right time to invest in platinum? I would say yes it is, precisely because of where we are in the price of platinum when looking at the big picture. The current marketplace has priced in very poor economic data; however, this will spur massive money supply growth coming forth by world central bankers in 2012. Money supply growth has been shown to lead car sales by three to six months, in addition to overall increases in precious metals prices. This is in addition to more interest rates cuts around the world; another key driver in car sales.
To recap, currently you are able to get platinum that is relatively cheap trading at a 25-year low when compared to gold. Plus money supply growth will be a worldwide phenomenon in 2012, which will be a wind in the sails of both precious metals prices and car sales, which will drive platinum price appreciation.
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Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what... Read Full Bio »
Forecasts Aug. 30, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 30, 2015
|Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)||$1014.15|
|Trailing 12-month Price/earnings multiple (Most Recent Quarter)|
|Dow Jones Industrial Average Dividend Yield||2.71%|
|10-year U.S. Treasury Yield||2.14%|