Donna Block
It’s boom time in Rustenburg as metal madness takes over the commodities markets. Speculators, mutual funds and hedge funds are seeing metals as safe investments amid fears of rising inflation and higher interest rates in the United States and Europe.
A year ago most precious metals were on the junk heap. Now they’re part of a treasure trove.
But the biggest pay-off so far is going to the South African companies that mine platinum group metals (PGMs), of which the most important are platinum, palladium and rhodium.
One of the main reasons the prices of platinum group metals have risen steeply is that Russia, a major producer, has not been exporting since last April because of political instability and bureaucratic bungling over export licences.
Russia is the world’s biggest producer of palladium, which is used in the manufacturing of automobile catalytic converters, and the second-biggest producer of platinum, which is currently in big demand for jewellery and has other industrial purposes.
The roles are reversed in South Africa, which produces far more platinum than palladium.
According to one New York analyst, as long as Russia is out of the market there isn’t much likelihood of either price going down.
The platinum price, which has been trading over $500 per ounce, is not only supported by shortages of Russian supplies but by a renewed optimism over the use of platinum in fuel cells.
Palladium, which is primarily used for catalytic converters, is heading toward $700 per ounce and rhodium, the world’s most expensive industrial metal, has traded well over $2E000 per ounce.
To give even more buoyancy to the PGMs’ prices, there has been increased environmental legislation in both the US and the United Kingdom, boosting motor industry consumption of palladium, platinum and rhodium, which are essential in catalytic converters to clean exhaust fumes.
Analysts say the motor industry’s insatiable appetite for palladium has been causing panic-buying by traders.
However, Barry Davison, managing director of Anglo American Platinum, the world’s top platinum producer said “the [platinum] price is not terribly different than it was years ago”.
And, even though “there’s a shortage right now and some speculation, the market could live with this sort of price”.
He added that when Russia resumes its exporting of the metals it will result in some reduction in price.
Meanwhile, the gold market, which has all but stalled going into 2000, is taking investors on a roller-coaster ride once again.
Last year saw the metal reaching 20-year lows, nearing $250 per ounce, then climbing back over $325, then closing the year above $285.
After wild trading sessions in New York and London recently, the metal had its first significant surges of 2000, climbing to $330 and coming down to $300.
The gold price has also benefited from producers deciding to follow the lead of Canadian mining company Placer Dome and end their hedging practices.
The decision will remove more than two million ounces of gold that would have been sold into the market this year.
Hedging added downward pressure to the widely quoted spot gold prices by locking in sales of future gold production.
Many gold producers use sales contracts to lock in the selling price of their future gold production and ensure future revenue.
But such sales also lock in gold supplies for buyers, restraining demand on the spot market.
Analysts said it may finally be the harbinger of a new era for gold if it can sustain the latest price rise.
An agreement by Europe’s central banks to limit gold sales and lending was also “an important first step toward improving gold market sentiment, but industry needs to do its part,” said Placer Dome president Jay Taylor in a statement.
Gold has pulled back from its highs and remains at just above $300 per ounce, but market observers say that tremors in the US bond market may be an underlying sign of inflation worries and may once again be a significant factor in gold’s gains.
“Gold does best in times of uncertainty,” said one New York-based analyst.
“There are a number of things that are going to cause people to say, ‘I want some gold this year’ and this [fear of inflation] is one of them.”