Commodity Online
MUMBAI: In the 18th Century, King Louis XV of France declared platinum as the only metal fit for a King, in view of its rarity. Platinum's wear- and tarnish-resistance characteristics are well suited for making fine jewelry. Platinum is more precious than gold.

The price of platinum changes along with its availability, but its price is normally more than twice the price of gold. Platinum possesses high resistance to chemical attack, excellent high-temperature characteristics, and stable electrical properties. All these properties have been exploited for industrial applications. From the investment and speculation point of view, Platinum is overshadowed by Gold and Silver, but there are many reasons why platinum should also be considered a good diversifier for investments, according to Religare Commodities Ltd. The silvery-white metal platinum is also a member of the precious metals family.

Platinum supplies will fall short of consumption for a second year in 2008 thanks to rising demand from automobile sector where it is used primarily in catalytic converters and secondly because of power cuts in largest platinum producing country, South Africa. Catalytic converters that remove noxious fumes from vehicle exhausts contains an average four grams of platinum or related metals such as palladium or rhodium. According to analysts, emission legislation will drive more demand in Europe next year and support growth this year in China, Russia, Eastern Europe and Japan. Russia has several million ounces of Platinum left in its stock piles. But analysts expect sales from such stocks to decrease because of declining requirement for foreign currency.

A Hedge

Platinum is called a hedge within a hedge expressly because it behaves differently from gold: First of all, Platinum serves as a diversifier within a diversifier. The fundamental difference between platinum and gold make platinum an excellent complement to gold in investor's portfolios._ Platinum primarily is an industrial metal as gold as a financial metal. Platinum prices tend to rise sooner in the economic cycle than gold prices. Platinum prices are more responsive to changes in industrial demand for platinum, which tends to rise as economies expand, Religare Commodities said. Platinum is used in a wide variety of industrial products and applications, including gasoline, anti cancer drugs, fibre optic cables, fertilizers, explosives, paints and pacemakers. Platinum prices are more volatile than those of gold, given the smaller size of the platinum market. Thus platinum prices tend to outpace gold prices during bull markets.

Portfolio Diversifier

There are no large above ground inventories in platinum. Platinum as an Ideal Portfolio Diversifier: Platinum is an ideal portfolio diversifier because the statistical relationships between platinum prices, on the one hand, and stock prices and interest rates, on the other, are very low. This qualifies platinum as a good instrument with which to diversify one's portfolio. The ideal portfolio diversifier is one that has little to no statistical relationship with the other assets in the portfolio. A common misunderstanding is that a portfolio diversifier should have a high but negative correlation. That would make it a counter-cyclical asset, rising as the other assets decline in value, and falling back as they recover. A better way to diversify a portfolio is to find assets that have no relationship to the other assets, Religare Commodities said in a special report. Supply deficit.

Global platinum supplies weren't enough to meet demand in 2007, bad news for a market that saw record price of nearly $2300 an ounce in March. Global demand for the metal, one of the world's rarest, climbed by 8.6% to 7.03 million ounces in 2007. Supply was at 6.55 million that year, so there was a deficit of 480,000 ounces. Safety shutdowns, geological and equipment problems, and a difficult labor environment hurt platinum supplies from South Africa, cutting production from that country to 5.04 million ounces, down 260,000 from a year earlier. The deficit between supply and demand comes a year after the market saw its first supply surplus in 8 years. There was a surplus of 355,000 ounces in 2006. Jewelry demand for new platinum metal last year, net of scrap recycling, fell by 55,000 to 1.59 million ounces.

Global purchases of platinum by the auto catalyst sector climbed by 8.2% to 4.23 million ounces last year. Auto catalysts are cylinders formed into a fine honeycomb, coated with a solution of chemicals and platinum-group metals, mounted inside a stainless steel canister and installed in the exhaust line of a vehicle. Growing production of light duty diesel vehicles was beneficial for platinum use. Platinum demand was held back, to some extent, by the replacement of platinum by palladium in the auto catalyst sector. The "more price-inelastic auto sector has been substituting aggressively with palladium in the gasoline.  Continued...