Platinum Hit

The original gold record awards for musical artists commenced 60 years ago next month, when Glenn Miller’s “Chattanooga Choo Choo” exceeded the then 1m sales requirement. By 1958 the Recording Industry Association of America, or RIAA, was established as a kind of Global Benchmark, similar to the “credit ratings agencies,” and by 1976 the gold award was debased to 500,000 album sales with a platinum award introduced for the 1m threshold.

Financial news wires were excited to point out yesterday that the price of Platinum had surged to a three-month high this week, exceeding the price of gold for the first time since last April, after the world’s largest producer, Anglo American Platinum Ltd, said it will cut annual production by 20%, or 400,000 troy ounces. The reduction is equal to almost 7 percent of total global production and according to recent Barclays Bank research supply will fall short of demand by 38,000 ounces this year.

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Indeed, a quick glance at a 1 year comparison chart supports the observation that the Platinum price has seen a surge and the $US price is now higher than that of gold, but before one jumps onto the latest,” hot investment,” a few observations may be prudent:-

  • The price has effectively gone sideways over the past year and still remains some 25% below its record high price of $2250oz seen back in May 2008.
       
  • The metal is mainly used in catalytic converters (pollution-control devices in cars) and in jewellery, both markets which remain very sensitive to economic growth, as are the price of Copper and Crude Oil, which can be seen below.

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Despite the estimated $US 20 trillion of Global “stimulus” by way of QE, LTRO and the myriad of other schemes dolled out by policymakers over the past few years, Global GDP is slowing and as such the price of the aforementioned commodities, including platinum, are likely to follow GDP, which at the moment looks to be lower.

Thanks also to sector related subsidies, including the auto industry, auto sales have rebounded. The US, which saw unit sales collapse from its 2001 high of nearly 22m to a post crisis crash low of 9m in 2009, has recovered to the 15.3m seen in 2012.

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A recent Bloomberg report included the table above, setting out the number of motor vehicles per 1000 people, with the World average at 170. Although the table is a couple of years old, it shows the U.S. total at 802, with the number fairly static over the prior five year period (which included the credit boom remember) whilst China, at 47, remains the fastest growing market in the world, albeit that sales growth has fallen over the past couple of years.

So there we have it, plenty of variables to ponder. Will the South African strikes continue for much longer and will economic growth pick up in 2013, particularly for China? Furthermore, electric vehicles sales, which have no need for catalytic converters, are growing and policymakers of all stripes wish to see this increase.

Returning to those music awards, a Diamond award was instituted in 1999 for albums or singles selling ten million units or more, thereby surpassing the merits of Platinum and Gold. So perhaps we should just invest in a “girl’s best friend.”

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