Platinum may be the best precious metal to bet on, whatever happens to the global economy or its more popular cousin gold, Kitco Metals Inc. precious metals director Peter Hug told International Business Times on Thursday.
On the one hand, if the global economy recovers, platinum and platinum group metals, including palladium, stand to gain as well.
That’s because the metal's heavy industrial use in automobile parts should benefit from a recovering automobile market in the United States and Europe, said Hug, an investment director at one of North America’s largest precious metals retailers.
As the flourishing middle class in China demands more cars, that will boost demand for catalytic convertors, also known as autocatalysts, said Hug.
On the flip side, if the global economy and equity markets stumble in the next few years, gold prices are likely to rise, as they traditionally have in uncertain times.
But platinum usually trades on at least equal terms with gold. Historically, platinum has actually traded more than 95 percent of the time at a premium to gold, Hug said.
“If you had to pick a metal, I’d be long platinum,” he told IBTimes in a phone interview. Platinum can be an effective hedge against volatile gold markets in the near future, whether gold tanks or soars, he said.
Questions of demand and supply are also important, according to Hug.
Labor unrest and seriuos electricity outages in South African mines this year have disrupted supplies, even as demand remains robust.
About 90 percent of the world’s platinum and palladium come from South Africa and Russia, and the reliability of Russian supplies usually depends on metal prices.
Platinum markets saw a supply deficit of 375,000 ounces in 2012, thanks to steeply declining output from South African mines, according to metals tracker Johnson Matthey’s (LON:JMAT) latest market review.
“At least 750,000 ounces of production were lost to legal and illegal strikes, safety stoppages and closure of some marginal mining operations,” reads the report’s executive summary.
In the near term, a prolonged government shutdown could hurt vehicle sales in the U.S., which already saw mixed auto sales data for September, according to a precious metals research note from HSBC Holdings PLC (LON:HSBA) from Monday.
“The PGMs [platinum group metals] were weighed down by gold and the release of mixed U.S. auto sales data in September,” wrote HSBC analyst James Steel.
Still, only 5 percent of precious metals investors have a position in platinum group metals at all, despite the increasing availability of sophisticated investment vehicles, said Hug.
“I just don’t think they understand what it is – they don’t know what a platinum bar or a rhodium bar is,” he said, of many midsized investors, who tend to emphasize gold and silver. “It’s alien to their psyche.”
Softening physical demand for gold, after a robust year so far, and modest inflation despite massive economic stimulus, don’t bode well for gold prices, he said.