Platinum spread narrows, but gold remains at premium

The spread between platinum and gold prices is beginning to narrow as improving auto demand data supports the white metal, but it’s unlikely that platinum will regain its historical premium to gold anytime soon.

Historically platinum has had a price premium over gold, but that changed around late September last year when a poor world economic outlook pinched industrial metals like platinum and buyers sought gold for its safe-haven status or its role as an alternative currency.

The discount platinum had to gold reached record lows as recently at early December, when it was cheaper than gold by more than $200 an ounce.

In order to have a corresponding ounce-to-ounce spread trade in the futures market, a trader who is looking for the spread to narrow would buy two 50-ounce platinum futures contracts and simultaneously sell one 100-ounce gold futures contract. The trade would be profitable if platinum prices gained more than gold prices did, or if gold prices fell and platinum prices at least stayed the same.

Since its nadir, the spread has narrowed to about a roughly $100 platinum discount to gold.

Platinum futures have put in a stout January rally and are one of the best performing commodities this month, with gains of roughly 14%, bested only by silver and orange juice.

Phillip Streible, senior commodities broker, R.J. O’Brien, said platinum started to gain ground a few weeks ago when news from the various auto sectors started to show a pick-up in demand for vehicles. Platinum’s main industrial use is in catalytic converters to scrub emissions.

Edel Tully, research analyst at UBS, said the UBS monthly survey of auto dealers, released this week, “reveals a still positive outlook on U.S. auto sales in January.”

Among some of the survey’s main points, January’s U.S. auto sales are expected to be up 8.7% year on year, the highest monthly sales volume since May 2008, excluding the impact of the “cash for clunkers,” which was a government incentive to buy up old, gas-guzzling cars. Further, she said, the rise in U.S. auto sales probably comes from pent-up demand and inventory building.

Where does it go from here?

Platinum’s steep price fall on both a spread basis with gold and a flat-price basis attracted industrial buying, said one platinum trader.

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Tags: platinum, platinum futures, platinum futures prices, platinum price, platinum price 2012, platinum prices

Posted by admin on Feb 1 2012. Filed under Platinum. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry