Long platinum short gold. In 12 to 36 months I’m excepting the premium of platinum over gold to go from $255 back to the 200 week moving average of $583 or higher. By shorting gold against the platinum it allows you to comfortably maintain a position in the precious metals market while shielding you against historic price volatility.
Each one dollar move for the spread equals $100 per contract currently we are $260 ($26,000) per contract from the all time historic low for the spread, and $910 ($91,000) per contract away from the historic high.
I’m allocating $50,000 per contract or nearly twice the amount to cover the risk to the historic lows, should the spread narrow to less than $100 I want reserves in place to add to this position. When the spread widens to the historic highs we’ll see a gross profit of $91,000 per contract or +175%. In order for me to “blowout” on this trade it would require Platinum to go to a $245 discount to gold and given current fundamentals this is extremely unlikely.
This trade will require patience. We need inflationary pressure and economic recovery to engage, or interruption of production which is a definite possibility. Approximately 90% of all platinum supplies come from South Africa and the former Soviet Republics.
How scarce is platinum? Annual production is 1/16 of gold
All of the platinum ever mined throughout history would fill a room of less than 25 by 25 by 25 feet. The annual supply of platinum is only about 130 tons - which is only 6% (by weight) of the total Western World's annual mine production of gold.
For current metals prices click here.
Below are charts on the platinum-gold spread, platinum and gold.
Fundamentals
Platinum
- Platinum is far more scarce than gold - The annual supply of platinum is only about 130 tons - which is only 6% (by weight) of the total Western World's annual mine production of gold.
- Approximately 10 tons of ore must be mined to produce one ounce of pure platinum. Furthermore, the total extraction process takes six months.
- All of the platinum ever mined throughout history would fill a room of less than 25 by 25 by 25 feet.
- Platinum is heavier than gold, 11% more dense. One cubic foot weighs around 1,330 pounds.
- Platinum has many more industrial uses than either silver or gold. In fact more than 50% of the yearly production is consumed (read destroyed) by industrial uses.
- Also unlike gold, there are no large inventories of above-ground platinum. Therefore, any breakdown in the two major supply sources would catapult the price into orbit.
Gold
- Gold is the most widely traded of the precious metals.
- It is primarily a monetary metal used in coinage in many countries. National governments now hold more than 1/3 of all gold in existence as national reserves.
- Because of its popularity as monetary metal, there are more forms of coins available in gold than any other type of precious metal.
- As an industrial commodity, gold is used extensively in the manufacture of jewelry, and in electronics, dentistry and many other commercial and scientific applications.
- On average four tons of raw ore are required to produce one ounce of pure gold.
Over my 25+ years trading, I have watched the relationship between gold and platinum prices. It is a rare occurrence that platinum, the more precious metal, has traded down to the gold price. It happened in 1987 after the crash. It also happened in 1991 and 1997. But only in 1991 did platinum dip below gold. On all occasions platinum rallied substantially after the parity price. In 1987, platinum went $235 over gold ($635 vs. $400). After a brief week trading parity in 1997, platinum took off and has never looked back, trading a whopping $1165 over gold ($2200 vs. $1035).
The spread between the metals has widened, but there is still room to go. It now sits at $255 (platinum over gold$1368 versus $1113) and has spent most of the last decade between $200 and $500. As a point of reference of how strong this spread has been, the 50-week moving average is a whopping $690 and the 200-week moving average is still $583. .
Production
The six metals of the platinum group (pgm) occur in nature in close association with one another and with nickel and copper. They are among the least abundant of the Earth's elements. Of the few known deposits, those in South Africa and Russia are by far the largest. There are fewer than ten significant pgm mining companies in the world.
Platinum and palladium have the greatest economic importance and are found in the largest quantities. The other four pgm - rhodium, ruthenium, iridium and osmium - are produced only as co-products of platinum and palladium.
South Africa is the largest producer of platinum. The Bushveld Compex began production in 1925 producing platinum as its main product with palladium and rhodium being the by-products.
Russia is the second largest producer of platinum. The Noril'sk site in Siberia began production in 1935 producing copper and nickel as the main product with palladium and platinum being the by-products.
The Stillwater mine in Montana, USA, began producing pgm, mostly palladium, in 1987, whilst in Canada production of pgm began around 1908 when Inco began mining nickel with mainly palladium as a by-product.
The presence of platinum, along with nickel and copper, were found in the rocks of the Great Dyke in 1918. It was not until 1996, however, that the geology of the deposits were understood and production could begin in earnest.
During periods of sustained economic stability and growth, the price of platinum tends to be as much as twice the price of gold, whereas during periods of economic uncertainty, the price of platinum tends to decrease due to reduced industrial demand, falling below the price of gold. Gold prices are more stable in slow economic times, as gold is considered a safe haven and gold demand is not driven by industrial uses. In the 18th century, platinum's rarity made King Louis XV of France declare it the only metal fit for a king.
Out of every 239 tons of platinum sold , approximatley130 tons are used for automobile emissions control devices, 49 tons are used for jewelry, 13.3 tons are used in electronics, and 11.2 tonnes used by the chemical industry as a catalyst. The remaining 35.5 tons produced are used in various other minor applications, such as electrodes, anticancer drugs, oxygen sensors, spark plugs and turbine engines.
According to the supply and demand data obtained from platinum group metals (PGM) think tank Johnson Matthey, there has been a running seven-year supply deficit in platinum. And analysts expect this deficit to continue.
Platinum demand has continued its global rise driven mainly by the auto catalyst sector. The growth of light-duty diesel vehicles in Europe has accounted for a large portion of this demand in recent years. And as demand for diesel vehicles continues to rise into the future mixed with tighter emissions standards being implemented globally, auto catalyst platinum demand should increase for many years to come.
The auto catalyst sector accounts for nearly half of the global demand for platinum, using 50% more of the metal than just four years earlier. As newer model vehicles are manufactured to meet the latest emissions standards, increased catalytic converter production is ultimately what has been running up PGM demand.
Platinum has been the metal of choice in this sector due to its amazing catalytic properties even though all PGMs (ruthenium, rhodium, palladium, osmium, iridium and platinum) embody this characteristic with differing levels of efficiency. In a nutshell, PGMs serve as the catalyst inside a converter where the chemical reactions take place in turn treating vehicle exhaust emissions.
A growing global environmental push to reduce automobile emissions of particulate matter, nitrogen oxide and hydrocarbons has led to increasingly stringent EPA and Euro IV regulations. Vehicle manufacturers have to grin and bear it, but if you are a commodities investor and/or speculator this can be viewed in a different manner.
My read is that catalytic converters will become mandatory in a growing number of vehicles, globally, in the future. And the more catalytic converters produced, the more PGMs will be required, specifically platinum. The more PGMs required, the more of a pinch PGM producers will face in bringing supply to market. And until the current economic imbalance reverses and there is a surplus of platinum, the prices will likely continue to rise.
We’re ready to answer questions, review trades, advisors, programs and/or do an online review, then provide immediate links for additional information and/or verification. To do a one-on-one on line review please call US+949-376-8020 with this page up and allow 10-30 minutes.
If you ever visit us in Southern California, below are a few links of my favorite places to stay all within 20 minutes of our office.
Montage my favorite
St. Regis very nice but not on the beach
Ritz Carlton nice facility, on the beach, service is ??
Pelican Hill I live next to this resort, beautiful facility close to the beach and great for golfers.
Looking forward to your comments and/or questions.
Regards,
Peter Catranis
My career history
USA +949-376-8020
US Toll-Free 800-994-5757
Mobile US+949-376-8020
Fax US+ 949-643-7111
Email pc@treasuries.com
The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains. In some cases, managed commodity accounts are subject to substantial charges for management and advisory fees. It may be necessary for those accounts that are subject to these charges to make substantial trading profits to avoid depletion or exhaustion of their assets. The disclosure document of a commodity trading advisor ("CTA") contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.