Platinum now cheaper than gold

2008-12-12 14:00

Johannesburg - It is now cheaper to buy platinum than it is to buy gold. On Friday the price of gold surpassed the price of platinum for the first time in 12 years.

Both precious metals eased despite the dollar weakness, bringing a two- day rally to an end as sentiment in global markets after plans to bail out the US automotive industry collapsed.

The $14bn bailout for the US automotive industry, besides being a lifeline for faltering vehicle manufacturers, would have boosted platinum demand.

Platinum, which is mainly used as a component in catalytic converters, is particularly vulnerable to a downturn in the automotive sector since the sector makes up 50% of total demand.

Failure to provide US carmakers with the financial lifeline they so desperately need has triggered concern over additional job cuts and a possible industry collapse.

The White House said the plan was American carmakers' "best chance to avoid a disorderly bankruptcy", said the BBC on Friday.

It has also stoked fears of the global recession deepening.

By 13:20 gold had slipped $6.37 and was trading at $812.50 an ounce from a close of $818.87 while platinum fell 2% or $16.50 to trade at $809.50 an ounce from a close of $826.

Platinum dropped as low as $797.50 during morning trade.

'Very encouraging' movement

The BullionDesk's James Moore said gold's movement over the past few days was "very encouraging",

But he said it "does raise a few questions about its sustainability short-term, which we suspect won't be answered until early next year."

"Overall though we would look for gold to continue trading sideways to higher as the Fed's printing presses further erode the value of the greenback," Moore said.

Turning to platinum, Moore said while the news from the US auto makers may generate some bearish sentiment, the ongoing downgrading of production forecasts should see the metal remain near equilibrium.

He expected platinum to remain in the broad $780 to $880 range for the time being.

Goldman Sachs in the meantime raised its three-month forecast for gold by 1.4% to $700/oz, which is 14% below Friday's spot gold price.

Dow Jones Newswires reported that the bank believed demand for gold as a safe-haven investment in the financial crisis will probably remain steady.

It also forecasting a reversal in the dollar, as de-leveraging and the repatriation of dollars declines, which it expects will support gold prices.

- I-Net Bridge