Published On: Sat, Feb 2nd, 2013

A tale of two metals at crossroads: gold and platinum in 2013

A balanced investment portfolio is a sine non qua for any investor, in any kind of economic climate. The first decade of the new millennium has been a time of intense market uncertainty and economic recession. The commodity market of precious metals traditionally exhibit strong bullish sentiments in such times and the past decade hasn’t disappointed us on that regard. This is especially the case with gold, as the value of the yellow metal has risen to the tune of almost 600%. And that is just of the actual metal.

In terms of mining stocks and futures trading, the growth percentage is almost double, with gold mining stocks having grown in value to the tune of almost 900 to 1000%. Needless to say, gold remains a great option to invest in for anybody, ranging from institutional investors to hedge fund managers to the individual investor out there.

Platinum, on the other hand is a precious metal with a somewhat different market behavior. It is one of the rarest metals on the planet with very low production and negligible reserves available. But  due to a consistent industrial demand in the automobiles business pegged annually at 8 million ounces, the performance of platinum stocks and futures in the market is not comparable to that of gold. While gold sees a spike in demand during economic downturns, platinum stocks seems to peak in times of upswing when buoyed by growth in the automobile sector. This throws 2013 as a fascinating year for both gold and platinum investments.

There are a lot of short-term factors that determine the day-to-day trading performance in the precious metals commodities market. As we step into 2013, gold has been going through a consistent bullish run on the long-term for the last decade, trading near (but under) the magic $1700/ounce mark in recent days. It has been almost 5 years since the worst days of the recent economic crisis which reflected in the mad scramble for gold as a safe haven. While the worst of the recession seems to be behind us, uncertainties still remain. And with the recent surprise dip in US economic growth, followed by an FOMC statement which reflected a continuation of the existing Fed policy, inflation is expected to stay for now. And that means gold still retains its status as a safe and attractive investment option with the bullish run expected to continue well into 2013.

Platinum production in the past year was beset by uncertainty with labor unrest plaguing the industry in South Africa, the major global supplier. Persistent deficit in supply going into the New Year coupled with healthy demand from the automobile industry finally pushed platinum prices above and over that of gold in the past month for the first time since mid March 2012. Since that rally though, the prices seems to have leveled out a bit. And unlike gold, since platinum’s prices are not directly affected by payroll fluctuations in the US labor market, many analysts are of the opinion that as of now, both the metals are at a cross roads in terms of future market progression.

Despite their contrasting behavior, both metals are trading at high value with demand in ETFs and stocks expected to remain on the higher side. Both offer great risk reduction to any portfolio, especially in the case of gold overlays which have proven to be able to lower portfolio drawdowns than in the case of unhedged and currency-hedged portfolios. In the current market situation showing high currency volatility both in the US as well as emerging markets, precious metals like gold and platinum offer a huge advantage in lowering the uncertainty in returns and hedging funds. This scenario is expected to continue well into the current fiscal year. And in final comparison, platinum’s more robust fundamentals show it as a somewhat safer bet to gold, maybe marginally so. This is because in the case of gold, some amount of correction could be expected towards the end of the year, as some analysts opine that the decade of bullish run might finally be coming to a close. But in the medium term, prices are expected to be on the upswing and even cross the magic $1700 mark in the coming days.



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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.