The recession did something interesting to platinum.  It took away much of its relevance, and the rising gold prices helped to take away platinum’s historic premium. Due to major labor strike with Lonmin plc (LMI.L) in South Africa, suddenly platinum is back in focus.  Actually, platinum is back with a vengeance and has only started taking a breather in the last day or two.  We were able to sit down with an industry insider to garner some insight into platinum and precious metals ahead of the Jackson Hole economic symposium where the market is hoping that Ben Bernanke will outline more quantitative easing ambitions.

It is important to understand what this strife is before getting focused only on the shiny white metal.  This is where social woes create financial woes.  Police officers mowed down striking workers, and the death toll of protesters is currently 34 with more than 70 injured. A YouTube video shows the massacre as well as armed protesters carrying machetes and spears.

If you saw a rally like this in gold, there would be talk of the onset of hyperinflation because in the last week and a half we have seen the price of platinum rise from roughly $1,400/oz up to $1,550/oz.  Gold rose as well, but for a different reason, up from about $1,620/oz to about $1,670/oz. The one metal that has tracked platinum is palladium, which has risen from just under $580/oz to $643/oz.

Any time you see a sudden spike in a metals price, what usually happens is that traders, speculators, investors, and hoarders start to look back over their long-term charts to see if the metal is poised to make a new high or at least make a run at an old high.  With so much of the world’s supply of platinum coming from South Africa we could not help but wonder if platinum could challenge its old highs or even more likely regain its historic premium over gold again.

We recently had a chance to sit down with Will Rhind, who is Managing Director of ETF Securities (US) LLC.  This is the ETF management group that has many physical commodity-based ETFs which track metals and other commodities in many different local markets.

We asked Mr. Rhind if platinum’s rise could be a run to new highs or anywhere close… 

WR: The all-time high for platinum was in March 2008 ($2286 an Oz) during the ESKOM power strike in South Africa. As we have seen over the last week, the conflict and ensuing disruption in supply at the Lonmin mines in South Africa has had a positive effect on the price, up about 10% over the last 5 days (as of Thursday). It is difficult to say at this stage how long the conflict will last, although we would expect the price to continue moving in an upward trend until the conflict has been resolved. Assuming the demand picture for platinum remains unchanged, the larger the loss of production grows, the more we would expect to see the price impacted.

If you just look at the ETFS Physical Platinum Shares (NYSEMKT: PPLT), Monday and Tuesday have been the first real breathing days after seven days of gains.  On August 15 this was $137.31 and Friday’s close of $152.42 compares to a mid-day price of $149.90 on Tuesday.

Can you comment on the general rise in metals prices in the last week?

WR: Platinum’s rise had been about 10% versus only about 3% for gold.  Platinum has been trading on the bad news out of South Africa, but gold’s rise has been fueled mostly on rumors of a new quantitative easing round here soon by Ben Bernanke and the Fed.

And why platinum has lost its luster to gold in recent years?

WR: The main reason why platinum is currently trading at a discount to gold is the macro uncertainty about the state of the global economy, which is weighing on platinum’s industrial attributes. If history is any guide, once the economy starts to truly recover we may very well see platinum trade at a premium to gold once more.

Could we expect to see a normalization of the platinum/gold ratio again or at least something more normal?

WR: Historically, we have seen platinum trade at a premium to gold. Unusually, gold has traded at a premium to platinum for the last 12 months, however we have seen the spread between the two metals come down quite dramatically from $225 at its widest to about $120 right now. In the past, a discounted platinum price to gold has represented a buying opportunity for platinum.

Gold is up again today while platinum is soft.  The ETFS Physical Swiss Gold Shares (NYSEMKT: SGOL) is still up 0.3% at $165.00 and the more actively traded SPDR Gold Shares (NYSEMKT: GLD) is confirming the move with a gain of 0.35% at $161.93 so far.

Last is on palladium… What is the real relationship that investors need to know between it and platinum? And what is happening on the palladium front with platinum back on the rise?

WR: Palladium participated in the precious metals rally over the last week.  Palladium demand is largely as an industrial metal and is often looked at in the same light because they are both Platinum Group Metals (PGMs) and both are used in auto catalysts. Palladium will unquestionably benefit from a move of this type in platinum because there is a psychological relationship between the two.

We would like to thank Will Rhind for his commentary and insight.

We took a look at the ETFS Physical Palladium Shares (NYSEMKT: PALL), which is the only physical palladium ETF traded in the U.S.  This ETF was at $56.78 on August 15 and its highest close was on Friday at $64.37. Shares have taken a breather and are down 0.9% on Tuesday at $63.37.

Perhaps the antithesis of the platinum rise has been a share price tank in Lonmin plc (LMI.L) on the London Stock Exchange.  Shares were down 1.5% at 630 earlier today and that is down from a near-term high closing price of 774.50 back on August 7 before the labor strife turned bloody and deadly. The company is based in South Africa and shares have stabilized based upon the belief that workers will return to work in the platinum mines in Marikana shortly.

Lonmin employs close to 28,000 workers and is said to have resources of 175 million troy ounces of PGMs and 43 million ounces of reserves. With South Africa being responsible for roughly 80% of the world’s PGM resources, you can see how a major situation with just one company can create severe global price constraints.

Let’s not forget about silver here.  After all, it is deemed the poor man’s gold speculation.  It is also called The Devil’s Metal. The ETFS Physical Silver Shares (NYSEMKT: SIVR) is up by 0.6% at $30.61 and the move is being confirmed by iShares Silver Trust (NYSEMKT: SLV) up 0.6% at $29.93 on Tuesday.  Silver has recovered by roughly 17% from its lows of the summer.

JON C. OGG

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