Gold's premium over platinum reached its highest in 7-1/2 months on Wednesday at over $210 an ounce, and could rise still further as the white metal suffers from its heavy exposure to the beleaguered European car market.
Platinum, which is chiefly used in autocatalysts and relies heavily on the European car market, fell to its lowest price this year on Tuesday at $1,374.80 an ounce, as it failed to benefit from the investment flows that have boosted gold.
Some traders have in the past taken platinum's widening discount to gold, historically a cheaper metal, as a sign that gold is overvalued and platinum undervalued, suggesting they should sell gold and buy platinum. But in the near term platinum's vulnerability means that strategy is risky.
The spread question to me comes down to more of a matter of technicals and positioning than anything fundamentals, Credit Suisse analyst Tom Kendall said. The last time the spread widened out above $200, you have tended to have it come in subsequently.
But from the platinum side, there is nothing, certainly on the demand front that you could point to to say, I want to be long platinum here.
European auto sales for June declined to the slowest pace in eight months, with new car registrations in the 27-nation European Union easing 2.8 percent to 1.202 million vehicles, according to auto industry association ACEA.
Platinum is heavily exposed to the sector, with Europe responsible for nearly half of gross global autocatalyst demand for the precious metal, itself accounting for some 40 percent of consumption.
I don't see consumers in places like France and Italy rushing into car shops and buying the latest diesels, LGT Capital Management analyst Bayram Dincer said. That just adds to the (negative) sentiment in platinum, and I don't think investor sentiment is strong enough to move the needle.
Traders say European carmakers are seeing no shortage of platinum supply, and that stocks of the metal are plentiful.
Demand weakness is so entrenched that even the threat of output cuts in South Africa -- source of between three-quarters and four-fifths of global platinum supply -- have failed to buoy prices. Miners there say rising costs, labour unrest and weak metal prices are making it tough to make ends meet.
While some leading miners have already said that output cuts may be on the cards, the lack of a price reaction in platinum partly reflects a view among traders that they may struggle to close down production capacity.
Politically, it is nearly impossible to close a bigger part of the mines, said one European trader. Political parties, unions and the population in general would immediately start to protest, and those protests can get really violent.
Three were killed in clashes between rival factions during a strike at Impala Platinum's Rustenburg operation, the world's largest platinum mine, which cost the company at least 80,000 ounces in lost output.