The Economic Times on Sunday AUGUST 28-SEPTEMBER 3, 2011

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Platinum vs Gold: The Metal Math

Crisis makes gold pricier than platinum. But why is platinum mostly more pricey? Why do automakers and luxury jewellers love platinum and why do central banks only love gold? Which metal is more volatile? The economics of shiny metals, explained

:: Tina Edwin

old began soaring to new highs as the fears of another crisis, this time rooted in Europe, gripped the West. Over the past few weeks, and particularly after S&P downgraded US long-term debt, gold narrowed its gap with platinum, and even went past it. This is not the first time gold has topped platinum, a metal 30 times rarer than gold, since the beginning 1990. In the first half of that decade the gap between the two precious metals was less than 10%, and gold traded above platinum on many days. Again during the crisis of 2008, the gap between gold and platinum narrowed, and that was mostly due to the crash of platinum.

So Why is Gold Rising Again?

Central banks in emerging nations have been buying more of the metal to diversify their reserves. Most central banks hold their reserves in currency, and mostly in dollars. While many have diversified to increase their holding of other currencies such as the euro, economic troubles have meant the value of the currency holdings has depreciated vis-a-vis the domestic currency. In comparison, gold has been rising, and central banks holding big quantities of the metal managed to protect themselves from losses due to erosion of reserve currencies.

government was trying to convince Likewise, investors including pension Congress to raise the debt ceiling funds and high networth individuals too and August 23, it rose $423 per ounce have been diversifying their portfolio, or 28%. The metal retreated from pushing up demand for gold bars and ex$1,911 per ounce reached in August 23 change traded funds (ETFs). Gold is condue to profit taking on expectations sidered a safe-haven investment, and of announcement of another quantithis explains the rush to accumulate it. OF GOLD BOUGHT tative easing package by the Federal Interestingly, elevated prices of gold BY INDIANS Reserve at the meeting. Strong ecohave not dampened demand for the metIN 2011 nomic data from the US also took al in India or China, the two largest consome sheen off gold. However, when sumers. Rather, the World Gold Council Fed chairman Ben Bernanke put off (WGC) reports that consumers in these two countries have got smarter and have stepped up easing till September, gold climbed again. Platinum in contrast has risen steadily after the purchases of bars and coins in the second quarter of 2011. For instance, Indians bought 108.5 tonnes as crash of 2008. Platinum is seen as an industrial metbar and coin in April-June 2011 compared with just 61 al more than a precious one, and its price has direct tonnes in the same quarter last year. At the same correlation with economic expansion. Most of its time, purchases of gold jewellery continue to grow. demand comes from auto-catalyst makers. Therefore when consumer confidence is positive and Similar trends were seen in China too. they are buying new cars, demand for platinum will Gold vs Platinum Prices be strong. The metal had crashed from a high of The global economy has been in much turmoil since $2,250 per ounce in March 2008 to $777 in Novem2008, and that is the primary cause for gold to trend ber 2008, losing 65% as economies in the West beupwards, and more steeply than platinum. For in- gan to contract after the onset of the financial crisis stance, gold gained 129% between January 1, 2008 of 2008. The metal has recovered most of the losses and August 23. Between July 1, 2011 when the US it suffered, rising about 130% from the lows it hit,

540 tonnes

In the short term, gold will continue to outperform platinum. Platinum will do well only when the global economy [and thereby industrial demand] picks up Kishore Narne, Head, Commodity, Anand Rathi Financial Services