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White Metals Perk Upby Peter A. Grant
Jan 16, AM 
While gold remains confined to a narrow range — up a negligible 0.2% year to date — the white metals are heating up. Platinum is leading the complex higher in the early weeks of the new year, regaining its premium to gold for the first time in nearly a year. Platinum is up about 9% so far in 2013, followed by silver at +4% and palladium at +2.4%.With platinum leading the charge, let's focus on that market today: The majority of demand for platinum comes from the automobile industry. U.S. auto sales rose an impressive 13% in 2012 as pent-up demand was unleashed by a rise in consumer confidence and improving credit conditions. The National Association of Automobile Dealers (NADA) expects that trend to continue in 2013, projecting sales of 15.4 million new cars this year. That would be a rise of 6.2% over the 14.5 million units sold in 2012. Forecasts from Edmunds and Polk are in that neighborhood as well. Scotiabank analysts are also optimistic, projecting that continued strong demand from emerging markets will lead to a fourth year of record global car sale volumes. However, all is not rosy on the demand side. The Wall Street Journal reported today that EU car sales fell 8.2% in 2012 to just over 12 million units. That's down about 25% from the peak of 16 million in 2007. Analyst are worried that even when Europe comes out of recession, demographic trends, driving patterns and the relatively young age of Europe's passenger car fleet do not bode well for a return to the robust demand of the mid-aughts. An aging population is also weighing on Japanese car demand, which saw a fourth consecutive monthly decline in December. While overall sales in 2012 rose an impressive 26%, it was the first increase in two years, and was largely driven by government subsidies. Those subsidies have since ended. The Wall Street Journal also reported today that Russian car demand is expected to moderate significantly this year. Demand was up 11% in 2012, but the Association of European Businesses in Russia sees a much more tepid 0.5% increase in 2013. Auto demand in China grew a rather anemic 4.3% last year, due to a sluggish economy, rising geopolitical tensions with Japan and efforts by several major cities to curb traffic congestion and smog. While the China Association of Automobile Manufacturers (CAAM) expects a rebound in demand to +7% this year, it is largely contingent on an economic recovery. With Europe already in recession and fiscal issues weighing on the U.S. economy, the recovery the CAAM is betting on may prove more illusive than they think. The second biggest component of platinum demand is jewelry, accounting for nearly a third of overall demand. In the ten-months that platinum traded below the price of gold, there was a corresponding increase in demand for platinum jewelry. However, if platinum is able to sustain the recent rise above the price of gold, we would anticipate that jewelry demand shifts back toward the yellow metal. On the supply side, as we've discussed in the past, about 80% of global platinum output comes from South Africa. That kind of supply concentration can, and has, proven problematic. Most recently, ongoing labor unrest in South Africa knocked more than 7% off of global platinum production last year. This week, the largest producer of platinum in the world announced that it was suspending production at several of its mines in South Africa, citing the rapidly rising cost of production. Anglo American Platinum has also said that it will sell its Union mine. There are mounting concerns within the mining industry that other producers will seek to restructure as well. Anglo American Platinum's restructuring plans are expected to result in 14,000 lay-offs. Not surprisingly, this news did not sit well with the workers, who have threatened to shut down all of Amplat's mines if they proceed. Such action could exacerbate a supply deficit that Johnson Matthey projected at 400,000 ounces back in November. If labor tensions rise once again, that deficit could end up being much worse, driving prices even higher. Platinum has probed above $1700 this week, levels not seen since October. Like gold, platinum remains confined to a range that was established in 2011; but unlike gold, platinum is now comfortably above the mid-point of that range. If platinum prices continue to gain ground, it should be supportive to the broader metals complex, benefiting gold as well. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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Wednesday January 16
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