Platinum & Gold Prices Converge

Over the past year, platinum prices have fallen from a high around $2,250/ounce to about $955/ounce. Gold has also dropped from its high of about $1,000/ounce to just below $900/ounce. That’s not good news for 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 (NYSE:SWC) closed one of its two Montana platinum/palladium mines in November. Stillwater attributed the closure to the severe drop in platinum and palladium prices.

But what caused the drop in platinum prices? Primarily it was the very weak market forcars. The largest users of platinum are the automakers, which use themetal in catalytic converters. As auto manufacturers everywhere suffer,so do platinum miners.

Platinum is also used in consumer electronics products and, of course,jewelry. Neither is expected to be a growth industry next year, and thatputs further pressure on platinum prices.

Gold, while it has lost some value over the past year, is holding itsown much better than platinum. For one thing, gold is about 30 timesmore common than platinum. Why spend a fortune mining for platinum whengold is that much easier to find? And now that the prices are so close,there’s even less reason to mine platinum.

And there is no liquid market for platinum. It is sold directly, as isuranium. Gold has been traded for centuries and its value is well-knownand reasonably transparent.

Deflationary pressure threatens to lower gold prices, but fear ofinflation and further financial meltdown sends a lot of investors tothe relative safe haven of gold.

Platinum prices are not expected to rise in 2009, but as the economyperks up and automakers start selling cars again, platinum prices willrise. Before that happens, though, platinum could fall further.

Paul Ausick
January 27, 2009