Singapore - Platinum is set to reach parity with gold after
rallies in recent weeks sent the metal's discount to gold to its narrowest in
nine months, but it may be too early to declare platinum's comeback since
economic recovery remains weak, especially in Europe.
The spread between gold and platinum narrowed to $31.30 an
ounce, its smallest since last April, after platinum staged its biggest
two-week rise in about four months on growing expectations of global economic
recovery. On average, platinum has stood at a $190 an ounce premium over gold
As more than half of platinum is used in industrial
applications, the sluggish global economy had dulled the shine of the metal,
despite its scarcity and a market deficit caused by supply constraint from top
producer South Africa. That picture may shift this year to platinum's favour, as
hopes grow that Europe may stabilise and the global economy embark on a steady
path to recovery, lifting outlook for metals used in industries.
"You have a metal which is more expensive to produce
than gold, whose supply is not growing and whose market is expected to be in a
deficit, such metal should trade at a premium to gold," said Dominic
Schnider, an analyst at UBS Wealth Management in Singapore.
But he cautioned that a return to a big premium in platinum
would be unrealistic.
"We are going to make it to the parity and a possible
$50 premium in platinum. But the global economy is still on a weak footing and
it will be too early to call a $100 premium."
The average production cost of platinum was about $1 600 an
ounce, while the production cost of gold stood at $1 200 an ounce, he added.
Spot gold traded at $1 668.24 an ounce by 08:27 GMT, down
about 0.4% so far this year after posting gains for the twelfth year in 2012.
Spot platinum traded at $1 635, up more than 6% so far this
year and leading the performance of the precious metals complex.
Some analysts are less sanguine, citing the protracted
dismal economic conditions in Europe.
"I worry we might see a repeat of what happened last
March," said Nick Trevethan, senior commodity strategist at ANZ in
Singapore, referring to a short period of platinum's premium to gold in early
"In order for platinum to hold a premium over gold, we
need to see a little more strength in demand...especially from Europe. The
supply side risk is there, but it hasn't materialised sufficiently to maintain
platinum at its traditional premium to gold."
About two thirds of Europe's platinum demand in 2011 went to
the auto sector. Car sales in the region are expected to further decline in
2013, as the eurozone debt crisis and government austerity measures sap
The high net longs in US platinum futures and options may
pose a threat to a sustained platinum rally, as the speculators loaded with
long positions may sell off to take profit in the short run, analysts and
Net longs in US platinum futures and options bounced from a
one-month low to 28,939 lots in the week ended January 8, down 18% from an
October peak of 35,145 lots, but up 59% from the 2012 average.