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Higher Platinum Prices Now Inevitable

In April, Investment Director Karim Rahemtulla wrote an informative article explaining why platinum prices are set to rise. Like so many things in the economy, the situation boiled down to supply and demand.

You see, as Karim explained, the platinum supply is shrinking thanks to the depletion of Russia’s Norilsk mine and labor unrest in South Africa’s platinum sector.

Since Karim posted his article, the situation in South Africa, the world’s largest supplier of platinum, has only gotten worse. The four-month strike is the longest and most costly industrial action in the country’s history, and has already cost the globe about 7% of its annual platinum supplies.

On top of that, we’re also seeing rising demand from an unexpected source, which means platinum prices are about to shoot higher.

The War on Gold

Surprisingly, demand for platinum is soaring in India.

That’s because, for the last year or so, the Indian government has been waging a “war” on gold. Import restrictions and tariffs have made it difficult for the average Indian to obtain gold. But the cultural affinity for precious metals is so strong that many Indians simply moved their love to silver.

Consequently, silver demand skyrocketed. Then, the authorities started to impose similar restrictions on silver, as well. So what happened next?

You guessed it… Citizens of the country have now moved on to platinum.

Today, platinum jewelry is all the rage across India. Platinum jewelry’s premium to gold jewelry has dropped from about 100% to between 10% and 25%, and analysts estimate that the demand for platinum jewelry in India will increase 35% this year.

In fact, platinum consumption in India is forecast at 40 metric tons (mt) for 2014, up from about 30 mt last year, which itself was a jump of 41% from the previous year. 2014 won’t be an anomaly, either. Exponential growth is forecast to continue in the years ahead.

Striking it Rich in the Platinum Rush

In the days ahead, increased demand for platinum will add fuel to an already-raging fire.

Currently, platinum is trading at about $1,450 an ounce. But Thomson Reuters GFMS predicts it will “exceed the $1,700/ounce level by the end of this year,” as supplies will be at a 14-year low and demand will be at a six-year high.

Amazingly, I think that GFMS may have even underestimated the year-end price. You see, GFMS was focused on industrial demand, and I don’t think it factored in India. Therefore, the $1,700 mark seems very reasonable.

A great way to play the upward move is through the purchase of an exchange-traded fund, such as the ETFS Physical Platinum Shares (PPLT). This fund holds platinum bars in vaults located in London and Zurich. The management expense ratio is only 0.60%, too.

Consider any gains a gift from India’s “war” on gold – the gift that keeps on giving!

And “the chase” continues,

Tim Maverick

Tim Maverick

, Senior Correspondent

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