Friday, January 9, 2009

Platinum Prices and the Year Ahead

There are a couple of different takes on the importance of platinum as an investment over the next year.

Some think the downturn in the auto industry and the resultant decline in platinum demand will slow the pricing of the metal, while others look at the price relationship between platinum and gold, and think platinum will be the best performing metal in 2009.

Under normal conditions, it usually requires between 1.7 and 2.2 ounces of gold to buy an ounce of platinum. Today the two metals are very close in price, generating the idea it's at bargain levels.

On the demand side, today South African investment bank and asset manager Investec (INVP.L) cut its short- and long-term outlook for platinum, citing the uncertainty in the auto industry as the driving factor.

In a research note, Investec analyst Rebecca O'Dwyer said, "We see downside risk to the platinum price in the near-term, particularly if vehicle sales continue to decline in the first few months of 2009."

Revised numbers from the bank places platinum at $970 and ounce in 2009 and $1,350 an ounce in 2010. Original projections were $1,350 for 2009 and $1,675 an ounce for 2010.

Who's right? That will depend upon whether demand is the determining factor in why investors buy platinum. Metals should be an excellent investment in 2009, and the economic circumstances would do more to dictate why people invest in them, rather than demand.

What I mean by that is U.S. equities, bonds and treasuries aren't going to be the focus of investors, with the danger connected to the U.S. dollar and the misguided bailouts and increased government spending.

So metals should be one of the few promising safe and growth sectors going forward into 2009. That in itself could override the demand factor concerning platinum (assuming it does go down), and the price definitely could surge up as investors pour their money into metals, and specifically platinum.

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