Welcome to illuminati silver, we tell you
the truth about silver. Today is Monday 12th September 2016 and we
are providing our views on the case for and against Platinum.
Since 1st January 2016 Platinum has risen by some 22% compared to 25% for gold and 39%
for silver With Platinum currently priced at $1062 per
ounce compared to gold which today stands at $1328 one can see that gold is trading
at a 25% premium to platinum. Many investors find this strange, especially when one considers
that historically, platinum often sells for about 1.5 times the value of gold per ounce.
There are a number of arguments as to why this situation may eventually recover.
1. According to Tom Winmill of the Midas Fund, “Platinum has been at a sustained discount
to gold only four times in the past 40 years and …. In all cases it recovered in the
subsequent year.” – indicating that the platinum-gold discount normally reverts to
a premium. 2. Platinum demand exceeds supply. Last year,
mining and recycling produced 7.82 million ounces of platinum. But according to the World
Platinum Investment Council demand was 8.2 million ounces – the difference coming from
“inventory,” or above-ground stocks. However this is likely to prove short lived as the
above-ground stock of platinum is estimated at 2.3 million ounces, or about 28% of demand
3. Platinum is difficult to mine and smelt. South Africa accounts for almost 73% of the
global platinum production but mining is often hindered by strikes and electricity outages.
Meaning that shortages cannot quickly be made up.
4. Unlike gold, platinum is used pretty extensively in industry. This could help explain the unusual
discount to gold. After all, many investors remain fearful that the global economy and
manufacturing are going to recess further and especially in China. However, U.S. Global
Investors CEO Frank Holmes expects improved growth in China. He thinks job growth in China
will boost demand for cars, which will spark demand for platinum. In any case, a modest
global growth figure of 1.5% – 2% will be sufficient to see demand for platinum continue
to rise. 5. Another problem for platinum is, and has
been, the Volkswagen emissions scandal which has turned investors away believing that demand
for its diesel-engine cars will be weak for some considerable time. However to counteract
this, diesel cars are still proving popular, especially in Europe as they are more economical
to run than petrol or gasoline vehicles. Of course it goes without saying that it’s
difficult to abandon or replace diesel trucks with an alternative.
Well they are the 5 main reasons for Platinum to gold recovery; now let’s look at 4 reasons
why that may not happen. 1. Not everyone agrees that the unusual platinum-gold
price differential has to narrow more and eventually revert to a premium. The argument
follows that weak global growth will put a lid on industrial demand which creates an
adverse price point for platinum. 2. Platinum has only risen on the coat tails
of gold, though it is more of an industrial metal and that this price increase will falter
as investors realise that only gold truly serves as a substitute for money. In other
words, Platinum is also benefiting from the tailwind provided to gold by the fading prospects
of the Fed rate hike. 3. Zhiwei Ren, Managing Director and portfolio
manager with Penn Mutual Asset Management, which has $20 billion under management, thinks
commodity prices are up in part because of government-induced credit expansion in China
aimed at boosting growth. This has fuelled speculation in commodities. But this source
of demand for metals like platinum may not last, he says.
4. Technology advances now allow catalytic converters to be made with much less platinum,
a trend that will continue. Meanwhile, more of the metal can be harvested from recycling
old converters, also because of better technology. So what does the Industry body have to say?
Well, according to the World Platinum Council….. “the platinum market is forecast to have
a full year 2016 deficit of 520 koz. We are confident that the fundamentals behind platinum
remain strong, will be so for the foreseeable future and will continue to present a compelling
case for investors. While a surplus was recorded in the second quarter, this was largely attributable
to the South African refinery outage in Q1 and the associated processing of backlogged
concentrate when refining resumed in Q2. We continue to see little evidence to support
rising output over the medium term. Platinum production from South Africa, the largest
producer, has failed to reach the levels observed in 2013 and 2015. Real cost increases due
to labour costs – which account for over 50% of overall mining costs – continue and,
together with low metal prices, they have driven the fall in capital investment across
this industry. Sustaining current output is harder as a result….. Overall, we firmly
believe that platinum supply will remain constrained for the foreseeable future.”
So what do we conclude from all this we hear you ask? Well as always it’s never clear
cut, otherwise we would all be taking out call or put options and retire to the Maldives
or some other Caribbean Island with the ensuing profits.
Notwithstanding this, without doubt the factors to bear in mind are:
1. Value of the dollar 2. Value of the South African Rand
3. Supply shortages 4. World economic growth or lack of it.
Our view is that short term, platinum will continue to move in a similar direction to
gold. However if there is an economic crisis, which many predict, then gold will outpace
platinum. If there is economic revival, then the reverse will occur and platinum will ride
high again. We on balance prefer gold currently as we are still not convinced about world
economic growth and we still foresee some considerable turmoil as the result of the
US elections reveal themselves, and especially if Donald Trump becomes the favourite to win.
Not necessarily because he would be bad for the US but because he is an unknown, and markets
like certainty. On balance we would prefer to wait a few more
months before considering moving into platinum, especially in a big way. Any surplus monies
we are now putting into gold again, especially as it may have a small knock down because
of the ever increasing threats of higher interest rates which frankly are not likely to occur
for some months yet. We hope you have found this video interesting
and informative and if so, please give it a thumb up and share it on twitter. Also kindly
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is updated daily can be found at facebook.com/illuminatisilver Disclaimer: Illuminati Silver owners come from a background
of Banking, International Wealth Management and Economics. Having now retired from these
worlds we are not qualified to give investment advice. Therefore, this and other productions
must not be deemed to be giving such advice and merely represent the personal views of