Gold/Platinum Ratio Falling

Platinum prices jumped to their highest level in five months yesterday on the back of strength across the entire commodity complex, and supply concerns owing to an on-going strike at the Rustenburg platinum mine in South Africa. As The Wall Street Journal reports, protracted strike action at Impala Platinum Holdings’ Rustenburg mine has spooked the commodity market, with the most actively-traded Comex platinum contract for April delivery gaining $35.90 (2.1%) yesterday, settling at $1,720.80 per troy ounce.

This mine is Impala’s second largest platinum deposit; the company accounts for 25% of total world platinum output and estimates that it’s already lost 80,000 ounces of production as a result of the strikes, with 20,000 being lost per week. If these labour disputes continue, platinum will continue closing the gap in terms of its price difference with gold. We could soon see it once again becoming more expensive than the yellow metal. If industrial unrest spreads across the country, gold and palladium prices could also be pushed higher, given South Africa’s status as the second-largest producer in the world of both of these metals.

Improving global economic sentiment is also helping platinum to outperform gold. In America, headline data continues to show improvements, while in Europe – though Greece’s problems are nowhere close to being solved – the can has at least been given another good kick down the road. Thus, in the short-term at least traders are partying like it’s 1999, and trying hard to forget about Portugal, a slowdown in China, Iran, or any of the other potential party-poopers out there.

What applies to platinum and palladium of course applies with equal vigour to silver, which also tends to benefit as sentiment improves and inflation expectations rise. News that Indian silver imports may hit 5,000 tonnes this year as a result of increasing investment demand is another bullish indicator. Last year India imported 4,800 tonnes of silver, with people looking to buy silver as an inflation hedge. However, the latter part of the year – traditionally a strong period in terms of Indian demand for precious-metal jewellery – saw unexpectedly weak demand, on account of weakness in the rupee and growing pessimism about the economy.

Yesterday also saw a new record gold price in terms of the British pound, in response to news that the Bank of England may be contemplating even more money printing. Sterling fell by 1.52 cents against the dollar and by 1.02 cents against the euro, resulting in a new record high sterling price for Brent crude oil of £77.77. Yet another indicator that those expecting a substantial fall in UK inflation are destined to be disappointed.