Gold Glitter Trumps Platinum Value

Worries that the trade is overcrowded has not stopped hedge funds have piling into gold. And not just gold futures or ETFs holding the metal; many funds bought gold producers, even though company stocks tend to lag significantly behind the metal.

So there is the big quant shop DE Shaw & Co. with Gold Fields, Kinross Gold, Allied Nevada Gold, Aurico, Barrick Gold, Eldorado, and several other gold companies. SAC Capital holds many of the same names, as do numerous other funds.

BlueCrest holds the SPDR gold ETF and Market Vectors gold miners ETF.  John Paulson, of course, led the way in buying gold.

Meanwhile, platinum and palladium languish, their industrial uses undermined by recession in Europe and slow growth globally.

Platinum remains at a discount to gold. Yet historically platinum has been at a premium to gold. So right now platinum is cheap, if you go by the ratio of the two prices.  The miners’ strike and violence in South Africa, producer of 80% of world platinum, was pushing up the price but the supply shock looks to be over as the miners have reached agreement with Lonmin.

Every time central banks announce they’re pouring more money into the system, everybody goes for gold. William Rhind of ETF Securities – which runs platinum, gold and silver ETFs – says platinum instead of gold could be used as a hedge against inflation.

Platinum would provide a cheaper defensive position compared to gold, but so far that idea has not caught on among funds. The more expensive gold gets, the better platinum will look as a substitute.


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