In the last one year the price of platinum registered a high of $1901 and a low of $1367. Platinum is trading just above $1400 and taking support at that level consistently. Platinum is approximately $150 cheaper than gold currently. The white metal is 15 times rarer than the yellow metal. Historically, platinum trades at a surplus to gold. In 2008 it traded $1184 more than gold.
Two-thirds of platinum is used in industry, including catalytic converters for automobiles, and the rest is used in jewelry. Sustained growth in auto industry and commercial vehicles industry will boost the demand for platinum and prices will rise accordingly. Investors should immediately focus on buying the white metal or its tracking ETF (PPLT) with a medium to long term perspective.
Platinum and Gold (GLD) ETFs Spread
Strong Auto Sales Growth in US, China, India, Japan and Russia
According to data by German automotive industry association VDA:
New passenger car sales in major global markets were nearly 14% stronger year-over-year at 4.90 million units in June due to buoyancy in the US and China and the recovery of the Japanese market. The figures reflect more than three quarters of total global sales.
US sales of cars and light vehicles rose 22% to 1.28 million units, while China recorded a 16% hike in car sales to 1.11 million units after average annual growth of 8.7% over the first half-year.
Car sales in Japan bounced back 47% from the earthquake-related depression in the previous year to 432,600 units, extending the recovery phase into the ninth month. (Source: VDA)
Global Market for Commercial Vehicles on Course for Growth
The commercial vehicle industry had emerged from the severe crisis of 2009 stronger than it was before, the VDA President Matthias Wissmann said, "The last two years have seen a great recovery. In Western Europe, sales of heavy commercial vehicles in 2011 climbed to around 262,000 units, which was a rise of 31 per cent compared with the crisis year of 2009." The van markets, too, were "back in their stride," Wissmann said. (Source: VDA)
Tougher Emissions Norms in the US and Europe: Furthermore, Europe and the United States are getting tougher on emissions requirements in all vehicles.
Demand for catalytic converters in India and China: India and China are moving up the economic ladder far enough to start requiring catalytic converters.
Platinum Miners Won't Be This Cheap Forever
It's been a grim year for platinum miners with rising costs, labor disputes, falling prices, and surplus supply. Aquarius Platinum Ltd. (LSE: AQP.L) has lost 85% of its value in the last year alone in the London Stock Exchange.
The CEO of Aquarius Platinum said in an interview, "We seem to be one of the few companies in the platinum industry that is willing pro-actively to take the required tough decisions," Chief Executive Officer Stuart Murray said. "I would hope that the other industry players follow suit and cut the unneeded production that is depressing the industry."
Bottom-line: More mines will shut down and supply will fall. This means demand will pick up. Since 1952, the market has soared in the second half of an election year 86% of the time. Platinum mining stocks are likely to rise along with rising demand for platinum.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.