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When Will Platinum Be Pricier Than Gold?

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Tight fundamentals seem to be in favor of further price increases, says one analyst.

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Historically pricier than gold, platinum had been trading at a discount to the yellow metal since September. But while its recent climb led it to briefly regain its premium in mid-March, gold has once again moved back into the top spot.

Platinum is trading at a discount to gold this week, with platinum for April delivery closing at $1,657.50 per ounce on March 27 and gold for April delivery ending the day at $1,684.90 per ounce on the Comex division of the New York Mercantile Exchange.

But one analyst says stay tuned for platinum to regain its position as the more expensive metal again in 2012.

So far in 2012, platinum has recorded an 18% gain, compared with gold's 6% climb. This comes after platinum recorded a 22% fall in 2011 as economic concerns, mainly with the eurozone, resulted in a negative outlook for industrial commodities, according to reports from Johnson Matthey.

Erica Rannestad, a commodity analyst with CPM Group in New York, says that platinum has received tremendous support from supply side issues in South Africa this year, a country which accounts for 75% of platinum mine supply.

"Currently there is a strike at the Modikwa mine, jointly owned by African Rainbow Minerals (AFRBY.PL) and Anglo Platinum (AGPPF.PK). The strike began last week. Before that, there was a strike at Impala's (IMPUY.PK) Rustenburg operations. This lasted for around six weeks and resulted in a loss of around 120,000 ounces of platinum output. This particular operation accounts for 20% of platinum output from the country," she says.

As a result, Rannestad says CPM has reduced its forecast for platinum mine supply growth in 2012 from 3.9% to 1.3%.

"The price recovery in the face of 'accidental' supply closures serves as a timely reminder of how susceptible the platinum industry is to disruptions," said Deutsche Bank in a note, via Reuters.

Also pushing platinum higher is improved investor sentiment toward the US economy, says Rannestad, although European demand concerns remain.

"Investors primarily buy platinum for its capital appreciation prospects, so when the economy is improving, investors are more likely to buy the metal for investment. Strength in the US economy has been supportive of this move. That said Europe is platinum's largest source of demand for use in auto catalysts. The contraction seen in Europe's economy will curb price increases over the next few months," she says.

In the London Bullion Market Association's Forecast 2012 analysts forecast an average platinum price of $1,624 for the year. In the forecast, Ross Norman of Sharps Pixley noted that with the possibilty of brighter economic prospects later in the second half of 2012, he sees platinum and palladium as some of the strongest performing commodities for the year.

"We believe platinum prices are depressed and reflect an expectation of ongoing and deepening economic stagnation – this explains why it is not trading at well over the $2,000 level. That said, we see the possibility of significant platinum price gains on South African production shortfalls, on improving investor sentiment and on rebuilding of physical platinum stocks amongst industrial clients – in advance of a recovery on the economy in late 2012," he writes.

Rannestad says she believes platinum prices will surpass gold prices this year, with the investment picture for platinum appearing more positive given growth in the US economy. An expected turnaround in the European economy in the latter half of the year will also prove positive for demand.

"Additionally, more strikes or other issues in South Africa could further deteriorate growth in supply of the metal. The tight fundamentals seem to be in favor of further price increases," she says.

When it comes to platinum stocks, Anglo American Platinum -- the world's largest primary producer of the metal, accounting for around 40% of the world's mined platinum -- is up 4% so far in 2012 after a 23% tumble in 2011. In North America, Stillwater Mining (SWC) has climbed 14.7% this year after falling more than 50% in 2011.

ETFS Physical Platinum Shares (PPLT) is up more than 15% so far in 2012.
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