Forget gold, go platinum!

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precious

by Chris Becker

With all the bearishness surrounding gold (and silver) we sometimes forget the other precious metals, namely platinum and palladium.

For those unaware, palladium’s (XPD) main use is in catalytic converters and in fuel cell technology.

But what’s caused the recent breakout (see charts below)? Supply. From WSJ:

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Palladium prices neared a 13-year high after a setback in talks to end a mining strike in South Africa raised concerns about future supplies of the precious metal.

Miners in South Africa have been on strike for nearly five months, bringing exports to a standstill. On Monday, the latest round of talks between miners and mining companies ended without a resolution.

Investors and traders say global supplies of palladium are starting to run low, meaning there could be a shortage if miners don’t go back to work soon. South Africa produces about 40% of the world’s palladium, which is mainly used in automobile exhaust filters. Global palladium inventories may be sufficient to meet up to 14 weeks of demand, down from 37 weeks at the start of the year, according to Citigroup C -0.50% estimates.

PALLAD

Commodities “value” generally follow supply/demand dynamics, although its easy to get these conflated if you ignore the speculative nature of the underlying contract – for a quick history, look at oil in the leadup to the GFC.

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Platinum (XPT) – another input into catalytic converter construction – has not followed palladium – up around 6% this year versus nearly 20% – but still stands well above the performance of gold (up 4%) and silver (down 1%)

PLAT

And may indeed follow it if supply is curtailed further by strike action. Again from WSJ:

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The South African government warned striking miners on Tuesday that shafts could close and jobs would be lost unless their five-month strike ended.

“The longer the strike goes on, the more likely shafts will close,” said Ngoako Ramatlhodi, the minister of mining resources. “I suspect there will be some job losses.”

Mr. Ramatlhodi told reporters that his mediation efforts between the three largest mining companies and Association of Mineworkers and Construction Union were over, after two weeks of talks aimed at reaching a deal broke down on Monday.

Some 70,000 miners stopped work on January 23 to press their demand that the minimum monthly wage be nearly tripled to $1,165.

While the shortfall in palladium is forecast to be 1.6 million ounces, it platinum the supply gap is now widening to 1.2 million ounces according to data from one of the world’s biggest catalytic converters suppliers.

Putting it all together, here’s a relative performance chart:

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PRECIOUSCOMPARP

Alternative assets in the form of commodity futures should not be ignored by investors – both long and short – and looking past gold – where successive rounds of QE haven’t lit a fire under it – you can find lots of other opportunities.