Gold prices have dropped by more than $100 per ounce in recent weeks – from over $1,380 in mid-March to $1,280.
I warned you about the lack of faith in the gold rally a few weeks ago after returning from the Prospectors and Developers Conference. Recall that physical gold dealers just weren’t seeing demand from the retail buyer.
That hasn’t changed. My sources still say that demand is slow, and they’re expecting more downside ahead.
[ad#Google Adsense 336×280-IA]While so many investors are focused on the price of gold, however, there’s another metal that’s not only rarer – but also boasts tremendous industrial demand.
It could catapult much higher – and much faster – than gold prices in the coming months and years.
Platinum’s Inevitable Growth Surge
If you haven’t guessed it yet, I’m talking about platinum.
Prices for the metal are set to skyrocket – mostly due to an impending supply crunch…
You see, while platinum jewelry might be popular, the majority of platinum (60%) is used for industrial applications. The auto industry, for instance, uses over 30% of all platinum for emissions control equipment.
And as the United States has recovered, auto sales have shot higher – with 2013 representing the best year for the industry in more than five years. Sales are increasing globally, as well.
Plus, controlling emissions is a major issue in places like China. And even though some platinum is recycled, which helps offset supply issues, the vast majority of platinum comes from new supply.
So you can see how classic supply and demand is about to send platinum prices charging higher.
And the situation for platinum prices is about to get even better, considering that the two biggest platinum suppliers – accounting for over 86% of global supply – are Russia and South Africa.
Both countries are running into issues that will likely lead to platinum supply crunches in the coming weeks…
Russia Reduces Expectations
Platinum prices rose in the days following the Russian incursion into Ukraine. But that’s only part of the story.
Russian platinum isn’t about to be sanctioned off the market. Russia is a global supplier of resources that the world needs. And that puts it in the enviable position of being relatively “unsanctionable,” as recent days have proven.
The real story is what will likely unfold in the coming years: a major shortage in the supply of platinum at current prices.
And the reason is simple…
The Russians are depleting their Norilsk mine, which is where most of their supply comes from. As my friend and noted resource specialist, Rick Rule, points out, the grades of ore being mined at Norilsk are decreasing steadily. This means that less platinum is being processed from each ton of rock.
Granted, there are new mines being developed, but it will be a decade before the first one comes on line.
South Africa Labor Strife to Further Shrink Supply
A platinum shortage in South Africa is imminent due to continued labor unrest.
Labor issues in South Africa have already shut down production in some of the biggest mines owned by companies like Impala. The workers on strike want more money, and the owners are threatening mass layoffs and further shutdowns.
If wages increase, mine profitability will decrease. And unless prices rise, owners will be forced to shut down less profitable mines, or the government may step in and seize the properties.
Either way, both scenarios bode well for higher platinum prices.
Now, in the past, the price of platinum has traded at a premium over gold of between 30% and 180%. This reflected platinum’s comparative rarity and its use for industrial purposes.
That premium dropped to a discount in 2012 and stayed there for a few months.
But thanks to tensions in Russia and South Africa, it’s back on the rise.
If supplies are, indeed, impacted in the coming months and years as I expect, the current narrow premium in the price of platinum versus gold may (yet again) expand to levels seen in the past.
And that will hand you much greater profits than any trade you make with gold right now.
Ahead of the tape,
Source: Wall Street Daily