Platinum Surges 12% YTD – Mine Closures Sees Supply Fall To 13 Year Low

Today’s AM fix was USD 1,670.00, EUR 1,234.93, and GBP 1,066.55 per ounce.

Yesterday’s AM fix was USD 1,678.00, EUR 1,240.02, and GBP 1,063.57 per ounce.

Gold edged off $0.50 or 0.03% in New York yesterday and closed at $1,673.00/oz. Silver rose to $32.10 in London before it dropped off to $31.60, but it then bounced back higher midday and finished with a gain of 0.25%.

Gold rose 0.6% in Australian dollars after poor retail figures led to concerns about the Australian economy and outlook for the currency.

Gold slipped $2 an ounce and the drop may have been triggered by news that India's central bank would consider imposing value and quantity restrictions on gold imports by banks under “extreme conditions”.

The world's biggest consumer of gold is battling a record high current account deficit. Rather than tackling the root cause of the problem, bankers are again tackling the symptom which is demand for gold. However, the anti gold stance and attempts to curb gold demand in India by the government is leading to some 25% of gold flows into India coming from irregular channels. A warning for anti gold and anti free market governments everywhere.

A further slide in the yen led to more buying of gold futures on the Tokyo Commodity Exchange (TOCOM), with the most active contract, currently December, hitting a record for the fifth consecutive day at 5,073 yen a gram – over 0.157 million yen per ounce.

The US Mint reported their bullion coin sales figures for February. Interestingly, no gold eagles or gold buffaloes (1 ounce 24K) were sold but silver continued to be favoured by bullion buyers and the US Mint sold a substantial 675,500 of one ounce silver eagles.

Platinum has surged another 1.5% to $1,738/oz this morning and palladium its highest since September 2011 (766.22/oz) due to increasing concerns about supply and industrial and investor demand.

Platinum prices have already risen by more than 12% so far in 2013, following the same advance for all of 2012.

Platinum supplies have fallen to a 13-year low as mines in South Africa, the world’s biggest producer, close and the platinum industry is in crisis due to industrial unrest, geological constraints and sharply rising costs.

Global production will drop 2.7% to 5.68 million ounces, the least since 2000, according to Barclays Plc, which raised its 2013 shortage estimate sixfold last month after Johannesburg-based Anglo American Platinum Ltd. (AMS) said it plans to idle shafts.

Anglo American Plc’s platinum unit, the largest producer, last month proposed the halt of four mine shafts that would cut about 7% of global production.

At the same time, demand from carmakers, the biggest consumer of the metal, will increase 0.5 percent in 2013, Barclays says.

Perhaps, most importantly investors are buying platinum at the fastest pace in three years and yet holdings of platinum remain very, very small.

Global production of the metal will fall as South African output drops 3.4% to a 12-year low of 4.11 million ounces, Barclays estimates.

“Supplies are very tight and it’s a serious situation,” Mihir Worah, who manages $110 billion in real return strategy funds at Pacific Investment Management Co., in Newport Beach, California told Bloomberg.

“Not only are there issues on the supply side, we could see surprises on the demand side as well.”

Concern about supply sent platinum prices above gold in recent days for the first time since April. Platinum traded above gold from December 2008 through August 2011.

There was a 394,000 ounce shortage last year as Impala Platinum Holdings Ltd. (IMP) shut its Rustenburg mine, the world’s biggest, and police killed workers striking over pay at Lonmin Plc (LMI)’s Marikana complex.

South African producers closed nine platinum mine shafts and dismissed 3,332 workers in the second half of 2012, the Department of Mineral Resources says.

Amplats, said last week it would idle four shafts and cut 400,000 ounces of platinum output a year, about 7% of global production, to restore profitability. The company said last week it would postpone that decision for as many as 60 days to allow for government and union talks.

Holdings in exchange traded-products backed by platinum expanded 1% to a record 51.5 metric tons yesterday, data compiled by Bloomberg show.

Investors have bought more than 5 tons of platinum through exchange-traded products in January, the most in three years.

However, the 51.5 metric tonnes owned through ETPs are worth less than $3 billion and there is the potential for allocations to rise from the tiny levels of today to much higher levels in the coming months.

Platinum remains undervalued and would have to gain another 35% just to reach the record nominal high seen in March 2008 at $2,300/oz.

Longer term, platinum’s inflation adjusted 1980 high of nearly $4,000/oz seen in 1980 is likely.

In 1980, the mining industry in South Africa, where more than 80% of supply comes from, was not in crisis. China and emerging markets were not seeing the growth of huge middle classes demanding cars with catalytic converters and global currency debasement was not taking place.

Record platinum prices are also likely as platinum is an extremely rare metal and is much rarer than gold. Today, we live in a finite natural world of geological constraints and yet we are witnessing huge population growth and near infinite money creation.

Platinum and precious metals have a negative average correlation to paper assets. Precious metals are one of the very few asset classes with a positive correlation coefficient with inflation - meaning that precious metals act as a hedge against inflation.

Real diversification remains essential in order to protect and grow wealth in 2013 and in the coming years, and platinum, like silver and palladium remains compelling from a diversification point of view.