Sprott’s David Franklin says the time’s right for platinum and palladium
by Greg Klein
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Bullion metals with industrial demand—or the other way around—platinum and palladium show a looming supply/demand/price scenario that should interest investors, according to David Franklin. That was the message the Sprott Asset Management market strategist brought to his May 26 presentation at Vancouver’s World Resource Investment Conference 2013.
Referring to the “madhouse at the Fed” and Japan’s “unprecedented” macro-economic policy, Franklin briefly went over the case for precious metals “as a way to protect yourself against this ongoing grind of negative real interest rates.” He said the recent sell-off in precious metals was “probably overdone… the fundamental backdrop hasn’t changed.”
Unlike gold, however, “almost all platinum and palladium goes into industrial production.” Traditionally a moderate amount has went into jewellery, but the price has mostly been determined by the automotive industry. “You can follow the use of platinum and palladium in headlines by following auto sales,” he maintained. American and Chinese sales rose 10% last year, although Germany’s numbers have declined.
The metals are used in auto catalysts, with gasoline engines using palladium and diesel using platinum, which withstands higher temperatures. Palladium sells for roughly half platinum’s price.
Gasoline-powered cars are primarily found in the U.S., China and parts of India, Franklin said, while diesel is used in other parts of India and in Europe. But over the last six months platinum and palladium investment has increased mostly through coins and ETFs, he emphasized.
As of May 24, platinum ETFs rose 30% year-to-date, with palladium showing an almost 20% increase. “So investors are moving out of silver and gold, presumably, and into platinum and palladium.”
Although the two metals are generally found together, South Africa produces by far the bulk of world platinum supply while Russia remains the top palladium miner.
A supply deficit for both platinum and palladium set in last year, largely due to South African strikes. “In platinum, we’re expected to be in a slight deficit this year… and 2014. For palladium, we’re a million ounces short this past year” and he sees “a five-year deficit of a million ounces or more in an eight-million-ounce market.”
He said palladium investment was previously forecast at 200,000 to 300,000 ounces this year. But “today already, between ETFs and coin sales around the world, we’re close to 400,000 ounces. Investor demand has already gone above where most analysts think investment was going to be for this year, and we’re only five months in. And it’s a very similar story for platinum…. So if we continue to see money flowing from investors into platinum and palladium, the deficit expectations will continue upwards.”
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