Profit from Rich Man’s Gold
By Andy Hecht, Editor, Trader Hunter &
Commodity Trend Alert
Dear Sovereign Investor,
Back in 1991, when I was trading at Salomon Brothers on Wall Street, I arranged a joint venture with a company called Almazjuvilirexport. Almaz, as this company was known at that time, was the Russian governmental agency that exported platinum-group metals from the former USSR to the U.S. and abroad.
Even today, more than 90% of the world’s annual supply of platinum comes from just four mines – three in South Africa and one in Russia.
Neither of these countries are what you might call politically stable. But even in 1991, it was clear that platinum was a truly rare and precious metal.
Rare and precious are the key to this white metal’s potential, and therein lies the investment opportunity in this rich man’s gold.
In The Sovereign Investor last month, I wrote: “Today, the price of platinum is below gold. In fact, it is more than 10% cheaper and currently costs around $200 less per ounce. This is certainly not the norm… at a $200 discount to gold, platinum prices are undervalued.”
Well, as predicted, precious metals prices have moved higher so far in 2012 and the rally seems to be just beginning!
Gold has climbed almost 10% to date this year. And, as I expected, platinum prices have outperformed gold prices so far.
At last glance, the discount of platinum relative to gold has moved from $200 an ounce to just under $90 an ounce.
At the end of 2011, gold was trading at $1,570 an ounce and platinum was $1,370. Today gold is around $1,720 which is $150 higher, but platinum is $1,630 some $260 higher.
Platinum has climbed by a healthy 19% this year. That means if you followed my advice and sold some of your gold and replaced it with platinum, you would have made $90 an ounce more than if you simply did nothing. And you stand to make much more in the future!
Platinum is Still Cheap, Relative to Gold
I expect platinum to be at a premium to gold later this year, and to eventually trade at a minimum of a $200 more than the price of gold.
Over the past 25 years, platinum has only twice traded at a discount to the yellow metal. Take a look at this chart:
The thing about platinum is that it is both a precious and an industrial metal.
On the industrial side, one of its key properties is that it is highly resistant to heat, and, among other things, that makes it perfect for the manufacture of automobile catalytic convertors. That means brisk global automobile sales in 2012 will support the price of the white metal, and expectations are for global automobile sales to reach 79.5 million units in 2012.
Refining crude oil into oil products requires the use of platinum. And the rare metal is also used in the production of catalysts in the manufacture of fiberglass.
At the same time, platinum’s production costs have risen. It now costs more than $1,550 to produce an ounce of platinum, which means that the metal is currently priced close to its’ production cost. Lower platinum prices would lead to production cuts.
However, the continuation of a 10 year bull market for precious metals points to much higher prices for platinum in the future.
The world’s annual mine supply of platinum is only 6% of the total Western World’s annual mine production of gold.
When and How to Buy
If you have not exchanged some of your gold for platinum yet, there is still time!
Platinum will easily drift back to “fair value,” which history tells us is around $200 more than gold, or $290 more than current levels.
It’s worth remembering that platinum traded up to almost $2,300 an ounce in 2008. And this rare and precious metal is still 40% below its all-time highs.
There are a number of ways to invest in platinum today. Bars and coins are available from reputable coin dealers.
While overseas shares are available for the South African and Russian platinum producers, I prefer to stay local.
Stillwater Mining (SWC) is a U.S. based company that produces platinum in the state of Montana, and it is the only pure platinum play not subject to potential problems in politically unstable parts of the world.
SWC, which produces 3% of the world’s annual supply of platinum, currently trades at a price to earnings ratio of 10.54 times earnings, which is cheap for a precious metal producer. SWC is currently trading around $13 a share. Over the past year this stock has traded down to a low of $7.31 and a high of $25.90. SWC offers great value at current prices!
The bottom line is that platinum is still cheap today and it’s set rise significantly over the coming months.
My advice is this: Jump in while you can!
Happy trade hunting...
Andy Hecht