Metals Report Platinum ready to rebound

Before the wheels fell off the platinum bandwagon earlier this year, the price of the precious-industrial metal reached as high as $670(US) per oz.

Its slump to $460 was quick but it was far from painless. There are a lot of gun shy speculators out there.

But that may be one of the reasons why Peter Cavelti, a precious metals analyst with an uncanny record for picking platinum’s price swings over the past few years, is suggesting that now might be a good time to take another look at platinum.

Mr Cavelti picked platinum in 1985 when it was under $300, then watched it rise steadily. He warned, however, that platinum `fever’ was more the cause for the runup to its peak price and said fundamentals indicated a price level in the low $500-range was more realistic.

Today the price sits at about $525 and Mr Cavelti is looking good.

So, Mr Cavelti, what’s in store for platinum now?

“We feel that platinum’s potential is now widely underestimated,” says Mr Cavelti.

He says $550 is a price that the fundamental analysis of supply and demand can justify — as suspect as such analysis might be given that 80% of the world’s supply comes from South Africa and the Soviet Union.

But, because precious metals tend to “overshoot” their targets, a price of $600 is attainable in 1987.

It was the fear of supply disruptions due to political upheaval in South Africa that fuelled platinum’s dramatic rise in 1986. Those fears have now subsided. In fact, supply is really quite stable and likely to grow at a significant rate.

Demand, however, is not expected to increase sharply. The demand for autocatalysts will rise dramatically, but with platinum prices so high and with a large volume of scrapped cars equipped with platinum catalytic convertors for the first time, secondary supply should be able to meet that increased demand.

What Mr Cavelti foresees is a strong increase in investor demand coupled with the resurfacing of tensions in South Africa as a major news item. Those two factors make platinum a likely candidate for a bullish performance in 1987.

Over the long term, Mr Cavelti is not so bullish.

Higher prices will inevitably lead to increased supply, largely from South Africa but from other sources as well including North American deposits only now being explored.

As prices improve, scrap increasingly will become a factor in supply statistics, too.

And, as for all other industrial metals, price increases give rise to substitution. Platinum alloys are already being used in autocatalysts, and further research and development can be expected.

Add to those factors the possibility of an economic recession bringing with it a decrease in demand, and it’s not difficult to see why Mr Cavelti does not predict platinum price increases to continue over the long term at the same rate at which they’ve climbed over the past two years.

Because of a relatively delicate balance of supply and demand, platinum price fluctuations are likely to be just as volatile over the next year or two as they have been in the past, he says. That alone is sufficient reason for potential investors to exercise caution when dealing in the platinum market