Sell Platinum / Buy Gold

We are advising holders of platinum to switch out of the white metal and into gold.
Although QE3 is expected to take place in September, platinum’s upside will be limited by high inventories. Whilst it is true that there is little downside potential given that its price is below the cost of production, its large physical market surplus will likely cap gains in the next few years. More production will need to be curtailed by the largest platinum producers to restore prices to levels where there should be profitable returns. However, increasing rates of recycled platinum supply may create even more challenges for the industry. Nomura forecasts a cumulative surplus of nearly 1m oz in 2015.
Lack of Industrial Demand
The European auto sector is in the doldrums and no other commodity is more impacted than platinum, with the sector accounting for 20% of total platinum consumption. Industrial production in the Eurozone is expected to decline until Q2 2013. Positive US and Chinese auto demand is not enough to make up the losses, particularly in China where only a minority of these cars are fuelled with diesel. Ongoing substitution to palladium in diesel cars is also weighing on platinum.
Switch into gold
We believe that platinum’s discount to gold will likely persist over the next 12 months, and therefore recommend increasing the allocation to the yellow metal.
Catalysts for higher gold prices
Higher liquidity, record-low US real rates, inflation expectations and a depreciating USD are all positive factors for the rest of 2012. Physical demand for gold also remains strong. Specifically, central bank gold buying has continued unabated with preliminary IMF data pointing to gold purchases of 4.64 million oz in the March-May period, the second-largest purchase in a 3-month window since February 2010. More impressively, ETF gold holdings set a new record earlier last month.
Only an unexpected improvement in the economic conditions in the US and the Eurozone would put-off central bank intervention and undermine higher prices. Goldman Sachs has a Y/E price target of $1,840/oz (vs. a current level of $1,600).

White Metals

While most investors are familiar with investing in gold and silver, there are other precious metals such as platinum and palladium that are less obvious but nevertheless just as valuable. Indeed research has shown that inclusion of these so called “white metals” can increase a portfolio’s performance whilst at the same time adding valuable diversification benefits and reducing the
portfolios volatility.

The easiest way for investors to gain exposure to these white metals is via exchange traded commodities, where investors can buy Platinum or Palladium via a single share. The ETFS Physical Platinum (PHPT.L) and ETFS Physical Palladium (PHPD.L) can be bought on the London Stock Exchange during normal market hours, in US dollars (GAM can obtain a Sterling equivalent price with the market) with an annual management fee of just 0.49% which covers the cost of storage and management. Both these ETFs are physically backed with the metals being allocated in a vault with HSBC in the US.


Increasing demand from green technologies, falling supply due to underinvestment, the “consumption” of mined silver in industrial processes and a historically massive deviation from the average gold silver ratio all point to a rising silver price from its current level of $16.30/oz.

In fact, many silver bulls are predicting the metal rising 10x between now and the end of the commodities super cycle expected to run until 2015. Considering its record high of $49.45 reached in 1980 is $100/oz today in inflation-adjusted terms, that target does not appear so fanciful as it first seems.

On top of that the mind-blowing quantitative easing programmes, loose monetary policies and record deficits resulting from government attempts to pull the world’s economy out of its worst recession since the 1930’s are by their very nature highly inflationary. This is an environment that favours precious metals as an asset class.

Technically silver is at the lower end of its rising trend channel and within touching distance of its 200 day moving average. We believe now is a great time to buy at these levels.

Whilst we still believe that gold is a core holding in every balanced portfolio, we believe that silver has even more room than gold for appreciation. So while gold’s bright prospects are in part the result of dark, economic “clouds”, don’t forget that those clouds are also likely to have a silver lining.

For investors looking for capital growth or diversification within a balanced portfolio, we recommend an allocation of 5% in ETFS Physical Silver (PHAG.L).

Article on gold

Please find an article on gold that was published in the Gibraltar Chronicle this month.

Article on oil

Please find an article on oil that was published in the Gibraltar Chronicle this month.