Short Sae
Short Sae
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A WINDOW OF OPPORTUNITY TO MAKE MONEY - INVEST IN GOLD
Investment advice in times of global economic turmoil.
Gold, Platinum and Palladium together with Silver have been the major metals investors have looked into when running from the equity market.
Platinum and prognoses in the short and long term.
South African platinum mining industry is expanding rapidly, making it likely that platinum and rhodium would go into "significant oversupply" in the medium to long term, and negatively impacting prices of these metals.
The oversupply driving forces are projected growth of South African mines, lower global vehicle production and increased auto catalyst recycling.
The analysts estimate that South Africa will produce 5.9 million ounces of platinum by 2010. Then continue increasing to 6.4 million ounces by 2012 and 7.6 million ounces by 2015.
The forecast takes into account expected production from an additional 19 projects that were due to be commissioned in South Africa between 2008 and 2015, as well as power-shortage and project-delay constraints.
This will lower prices, shorten the company margins, minimize cash flows and earnings.
The 2010-to-2014 platinum oversupply would potentially reduce platinum prices with 30% and the 2009-2011 rhodium over supply could make the rhodium price to be half.
In 2008 there was already expected that the platinum price would drop to between $1,200/oz and $2,000/oz and the rhodium price to between $4,600/oz and $8,000/oz.
If we look at the statistics for the period from 1999 up till today, we can see that this prediction was not far off, it was even too optimistic. In 2008, the price of Platinum stabilized on a level of around 8-900 USD/Oz., see figure below.
Figure 1; the trend for Platinum in 2008, with the downfall in June 2008 down to a base level at the end of the year, and the slowly upward trend in the first quarter of 2009.
Platinum and palladium prices were down on demand concerns after the top three auto manufacturers in the United States, General Motors, Toyota and Ford Motor all reported that sales were down in June already that year.
Both platinum and palladium are used in the manufacture of pollution control devices for motor vehicles.
U.S. auto sales remained at the lowest annual rate in 15 years, in July 2008. That fueled concerns that demand will decline for platinum and palladium for auto-emissions control parts. Production in South Africa is the source of 78 % of the world’s supply.
General Motors, Ford Motor and Toyota Motor Corp.’s U.S. reported declined sales, record gasoline prices depressed demand, for trucks and large vehicles, and a slowing economy kept consumers away from dealer lots. Ford Motor reported a 15 % drop from a year earlier, Toyota’s sales fell 12 %, and GM posted a 27 % decline.
Figure 2; Palladium price development from 1992 to 2009. Both platinum and palladium are used in both diesel and gas catalytic converters. Rhodium is often a third component. And gold might come into use in some diesel catalytic converters. Throughout most of the mid 1990s palladium was trading in the $150 per ounce range. Beginning in 1997, a rise in palladium’s price was seen, no doubt due to rising demand stemming from use in auto catalysts. In 1998, some spikes occurred to above $350 per ounce. In 1999, it continued to trade in the $350 range, but began rising at year’s end.
As the year 2000 began, palladium was trading at $433. By February 24, it had shot up to $1080, due in part to delivery interruptions from Russia causing a shortage. Automakers, whose manufacturing of catalytic converters depended on reliable stocks of PGMs, had concerns of their own. After reaching the peak in February 2000, palladium retreated during the March to May period, perhaps raising hopes that the Russian metal would be available the rest of the year.
A significant 2010-2014 platinum-rhodium price downturn will "shock" the industry as it can slash industry earnings by between 40% and 90% by 2012.
If mining inflation were not checked, the impact of lower prices would be compounded.
There is expected a cost increases compared to previous years, which will be a price driving factor as well.
The investment case for the South African platinum industry would, however, remain strong in the immediate term, as calculations show both platinum and rhodium in short-term deficit.
The 2008 platinum deficit would be 600,000 oz and 2008 rhodium deficit 80,000 oz, putting upward short-term pressure on prices.
The automobile manufacturer’s reports and a brighter supply outlook out of South Africa continue to present a hurdle to price advances.
The Platinum group metals have been hit the strongest as investors believe they have hit their top and want to be in the more liquid gold, where they can get in and get out quickly. With platinum below $1,200 an ounce, it is expected that good industrial buying in South American countries will occur.
Platinum reached a record $2,308.80 on March 4, 2008 partly because of output cuts in South Africa. But, by May 2008, precious metal output, except for gold, rose at a 2.6 % annual pace, according to Statistics in South Africa.
Platinum fell as the dollar rose against the Euro.
Over the past year, platinum prices have fallen from a high around $2,250/ounce to about $955/ounce.
The gold prices development is not good news for the platinum miners.
Platinum deposits are primarily located in a small handful of countries: South Africa, Russia, Canada, and, just barely, the US. Stillwater Mining Company closed one of its two Montana platinum/palladium mines in November. Stillwater attributed the closure to the severe drop in platinum and palladium prices.
Prognosis for Palladium and Platinum
The prices of Platinum and Palladium have also been climbing in anticipation for the possible demand for fuel cell use. Cheaper alternatives for platinum for both catalytic converters and for fuel cells are being developed and may soon reduce that demand also.
It is about the most useful metal in chemistry and jewelry and should have a relatively high intrinsic value. But now the metals values mainly as a safe haven investment, but not a quite so speculatively useful metal as f.inst Gold.
Hedge funds are still unwinding selling assets like platinum which lowers the price. Also industrial demand is drying up as deflation sets in with people buying less and companies producing less. At least that's one reason for the drop in prices of platinum.
Not saying it's not good to hold platinum or that platinum will continue it's downward slide into the abyss. When commodities start to climb due to inflation - after this deflation bit - platinum will climb with them.
Another reason for uncertainty to pricing of Palladium is a product recently developed by Litex, Inc., which is currently being exhibited this week at the Society of Automotive Engineers (SAE) World Congress, could help auto manufacturers save hundreds of millions of dollars by reducing the amount of palladium needed in a car's catalytic converter.
The Corona Discharge Device is a low-cost, low-power (25 W) product, which boosts the performance of a catalytic converter. It alters the chemical composition of exhaust gases, enabling the converter to operate more efficiently and making it more fuel sulfur tolerant. In addition, the CDD provides auto manufacturers the ability to meet increasingly more stringent emission standards, such as Tier 2 and Euro IV, with less precious metal. This is particularly important given the skyrocketing price of palladium, platinum and rhodium prices, potentially providing net savings of up to $150 per vehicle!
Gold and its future for the investors and why
Gold has fluctuated the last months between about $1,000/ounce to just below $900/ounce. That’s not good news for platinum miners.
Farm bill passing in June of 2008 which tightened the rules regarding speculation in several markets at the same time is responsible.
The reason for platinum near-parity with gold is that gold is holding up better, with its history as a store of wealth during economic hardships.
Look at any stock or commodity and their recent declines (due to deleveraging) and compare their losses to gold's.
Gold is not really a commodity – where as in Switzerland you are able to go to any one of the local banks and trade Euros, Dollars, etc by gold bullion and vice versa.
Gold has shown continued strength at present day price levels amid the volatility in the economy around us.
Figure 3; Gold prices have risen steadily during the last few years. However in th end of 2008 we saw a dip in this trend, as Gold price went down. Since that moment, the prices have fluctuated between the max price and a price around 900 USD/Oz. Predictions from various experts are a price level of 2000 USD/Oz within 24 months time. This would make Gold a very healthy investment.
Gold has experienced a shift in fundamentals when compared to 1980's speculative high.
Five fundamentals that drive the gold prices
- Supply and demand,
- Dollar weakness,
- Institutional buying,
- The price relationship between gold and oil, and global economic uncertainty
Donald W. Doyle, Jr. Chairman and CEO of Blanchard said early in 2008 that we should expect some gold price consolidations, which would be healthy for the market, and view these as buying opportunities, because we see the price ultimately going significantly higher than levels at that time in the long-term. This tip came through as we see price has consolidated in early start of 2009.
The demand for gold is driven by several factors
- Global supply shrinks,
- Emerging markets begin to play a more significant role in the world's economy,
- Former sellers of gold - notably central banks and hedge books - reverse their selling trends and become buyers again themselves.
We would expect these conditions to be present at least during 2009, as there are no signals of the opposite.
Present day economic situation and why it makes sense to invest in Gold
The Global economy is slowing to a crawl, and the U.S. Fed is continuing to infuse liquidity through rate cuts that further weaken the dollar. Large institutions and central banks continue to move out of dollar-based assets and into quality alternative tangible assets such as gold.
Differences between today's economic collapse and that of 1987 where a near global implosion featured a U.S. economy that was in solid shape. Today the underlying cause of the crisis is the U.S. economy and domestic housing deflation. Real consumer spending is declining, unemployment raising, and industrial production in the U.S. is losing traction, triggering a flight to quality alternative investments.
Gold is not just a luxury item - it was the foundation of the global currency system for eons and, as the current global economic crisis continues to unwind, the precious metal has reasserted itself as the fourth currency. There is a belief that widespread increased investment demand will offset any decline in luxury goods manufactured with gold as investors seek to secure assets that will retain their value.
About the Author
He has a background as civil engineer and geoscientist. He has worked mainly within the oil and gas industry from the mid 1980s. He has written a few fictional novels as well as being the author of some professional litterature within oil and gas sector, he is now an editor of some web sites.
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