Platinum Has Room to Run

01/13/2012 11:00 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

One of the real dogs of 2011 is doing better so far this year, and has plenty of upside, writes senior editor Igor Greenwald.

It’s early, but it already seems as if every dog of 2011 has had its day in 2012. Maybe not the kind of day like Netflix (NFLX), which is up 33% year-to-date, or Bank of America (BAC) which had been up 22% until today’s reminder from JPMorgan (JPM) that banking remains a troubled industry.

Still, banks, homebuilders, insurers, metals miners—you name it—have started the year in emphatically bullish mode. Platinum, on the other hand, is up just 6% via the ETFS Physical Platinum Shares (PPLT).

That’s actually slightly better than the performance of the SPDR Gold Trust (GLD) and Silver ETF (SLV) this year, but after a 22% decline in 2011 the hardy souls still hoarding the rarest of metals are surely looking for more.

They ought to be happier by year-end, because platinum is geared to the faster growth that will come eventually, while its downside is limited by high production costs that should crimp supply at prices much below current levels. 

Of course, I predicted the same thing six months ago in a column that has proven ill-timed. But the slump that hit stocks and metals last summer and fall appears to have played out, and nothing about the performance of the global economy since has done much to dim platinum’s strong long-term fundamentals.

It remains a commodity that’s fiendishly hard to produce, with mining concentrated in South Africa, which is still coping with crushing poverty and the resulting political ferment. Platinum is also an indispensable input in a number of fast-growing industries, from petrochemical refining to electronics and diesel manufacturing.

It’s currently priced below gold, despite the latter’s much lower production costs, in a reflection of the premium accorded to the traditional store of value. This sort of discount last prevailed for any length of time in the first half of the 1980s, and I don’t expect it to last as long this time around.

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