February 28, 2013 – Platinum’s price surge in the end of January was predictable, given the high levels of probability that labour unrest and the resultant production cuts would crimp supply, says Alan Demby, executive chairman of the South African Gold Coin Exchange.
“Gold, too, reacted to the prospect of lower production, since, Demby contends, there is little doubt that the closure of platinum shafts would herald the closure of gold shafts.”
“The tragedy is that recent labour actions have been counter-productive, with unemployment in the mining industry set to increase dramatically. Unrest and unrealistic wage demands are simply rendering a great many operations unviable.”
He points out that the impact on the price of platinum is more marked because South Africa is the world’s largest platinum producer, whereas gold no longer commands such status. “And since the labour problems recently experienced are unique to South Africa, the production setbacks are not replicated elsewhere.”
Additionally, the world’s stock of platinum is far smaller than that of gold, thereby exaggerating platinum price volatility.
Yet while the labour story is uppermost in current circumstances, Demby emphasizes that several other underlying factors are at work in determining the price behavior of the world’s precious metals, among them:
- signs that the European Central Bank will not cut interest rates any time soon;
- China’s export growth rebounded surprisingly sharply to a seven-month high in December after seven straight quarters of slowdown;
- improvements in US vehicle sales has boosted demand for the platinum group metals occasioned by heightened consumption of autocatalytic converters;
- the overall global pattern of central bank easing continues to be a feature of the global financial structure;
- the so-called “fear index” suggests that concerns over global financial stability are still running high; and
- bear always in mind gold’s role not only as a safe haven and the ideal hedge against incipient international inflation concerns, but as a store of wealth, as an industrial product, as a jewelry item and more, against which background demand remains buoyant.
Demby urges investors to ensure that 15% of their total assets comprise precious metal coins.
More information on the South African Gold Coin Exchange are available on their website.