Back in November, I told readers of my Scarcity & Real Wealth newsletter about the aberrant relationship between gold and platinum prices. I thought the opportunity was so compelling that more people needed to know about it. So on Jan. 9, I shared it with StreetAuthority.com readers.
To recap...
Historically, platinum almost always trades at a premium to gold -- as you would expect, considering it's about 30 times rarer.
With much thinner production and heavy demand, platinum has traded 28% higher than gold during the past five years and more than 60% above gold on average during the past decade. But earlier this year the two metals were at 1:1 parity, and platinum prices have since sunk below those of gold.
Right now, platinum at $1,498/oz. is actually trading at an 8% discount to gold at $1,643/oz. That's a far cry from the 25% premium where it started the year. The last time this relationship inversed, in 2008, gold went on to climb 38% during the next 16 months, while platinum soared more than 100%.
I think we could be headed down a similar path. According to Bloomberg, the median (not the most optimistic) forecast among 12 top metals analysts calls for platinum prices to reach $1,845 by the fourth quarter of 2012.
That could mean a gain of about 25% from today's levels.
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I don't take analyst forecasts as gospel, but these experts do have an intimate understanding of what is impacting the market. And I agree 100% with their assessment of why platinum prices are set to climb -- the current inventory glut is disappearing fast.
On the demand side, car production continues to advance, particularly in emerging markets such as China.
According to research house LMC Automotive, car makers will manufacture nearly 80 million new vehicles next year, a new record. Just about all of those cars and trucks will be outfitted with a platinum- or palladium-based catalytic converter. This means demand from Toyota (NYSE: TM), General Motors (NYSE: GM) and others could climb 17% in 2012 to 3.82 million ounces.
That would eat up approximately $7 billion worth of platinum, the biggest auto consumption in five years. Bloomberg reports that four of the U.S.'s top six auto makers already topped production targets last month and are now running at the strongest pace in more than two years.
Meanwhile, industrial users are competing with investment demand, as holdings in physical platinum exchange-traded funds (ETFs) have recently risen 7% to 40.3 metric tons.
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So will miners be able to meet the higher global demand? Nope. In fact, Barclay's expects supplies to drop around 1% in 2012.