Wednesday, January 11th, 2012
By Sasha Cekerevac, BA for Profit Confidential
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.
|Total 2012 per share earnings for 30 stocks in the Dow Jones Industrial Average:||$900|
|Dow Jones Industrial Average Price/earnings multiple:||16.0|
|Dow Jones Industrial Average Dividend Yield:||2.5%|
|10-year U.S. Treasury Yield:||2.02%|
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