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SOVEREIGN MAN

Did you make 18% with us since December?

March 14, 2012
Manila, Philippines

[Editor’s note: Sovereign Man Chief Investment Strategist Tim Staermose is filling in for Simon today.]

Back in mid-December, I called buying platinum the “most obvious trade in precious metals.”  I pointed out that it had fallen all the way to $1,440 per ounce and was selling for well under the price of gold, which was at $1,613 per ounce at the time.

I predicted that it wouldn’t be long before the natural order of things reasserted itself, and platinum — which is MUCH rarer than gold — would climb back above its precious metal cousin.

Sure enough, three months to the day since I wrote that column, platinum has again exceeded parity with gold.  It’s up 18% to $1,697 as I write.  Gold is up 4% to $1,676.

So, if you followed me and bought platinum, you should be grinning from ear to ear.  But I don’t think it’s time to take profits just yet.

It’s likely this upward trend in platinum will continue.  As I pointed out back in December, there are three main factors driving the platinum market.  All are bullish at the present time.

First, platinum is highly susceptible to supply disruptions.  About  80% of the world’s platinum supply comes from South Africa and Zimbabwe.  South Africa’s platinum mining industry is plagued by unreliable power supplies.  Zimbabwe is a basket case and anyone counting on a reliable, uninterrupted supply from there must have rocks in their head.

Second, the demand for platinum for use in catalytic converters, which help clean automobile exhaust fumes, can only continue to increase longer-term.  It’s not just in the developed economies that strict emissions controls will apply in future.  The emerging economies, led by China, are choking on some of the worst air in the world.

Third, there is a strong and growing demand for platinum in jewelry.  Again, China is at the forefront.  Many Chinese are choosing platinum over gold nowadays, as they see a relative bargain.  And why not?  They can get a much rarer product, for about the same price as gold.  It’s a no-brainer.

For all these reasons, I wouldn’t be surprised to see platinum continue to rise in price over the medium and long term.  That said, I couldn’t blame you for locking in a quick 18% profit if you bought platinum on my advice back in December.

Personally, I’m still holding.  My main platinum exposure is in the 1-ounce US Eagle platinum coins.  Compared to holding shares in the Platinum ETF (PPLT), for example, these coins have an added kicker.

According to a friend of mine, who has one of the most valuable US coin collections and is as knowledgeable in the field of numismatics as anyone I know, the extremely low mintages of these coins — often under 10,000 — means they’re ripe for price appreciation above and beyond the value of their bullion content.

In other words, the high likelihood of strong demand for these coins from collectors in future gives you leverage to the platinum bullion price.

Until next time,

 
Tim Staermose, Chief Investment Strategist
Sovereign Man

 

About the author: Born to a Danish father and British mother, in Dar Es Salaam, Tanzania, Tim Staermose has led an international life since the day he was born. Growing up, he also lived in Egypt, Denmark, and Singapore, before eventually settling in Australia, where he completed his education and took out citizenship. Since then he has also lived and worked in Hong Kong, and Manila, Philippines, in the field of equity research — both for a bulge-bracket Wall Street investment bank, and for an independent investment research firm. Today, when not traveling the globe looking for investment and business opportunities for the Sovereign Man community and catching up with his diverse, multinational group of friends, he divides his time between Hong Kong, and the Philippines.

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Comments on this entry are closed.

  • localhero100

    You made 18% in 3 months? I bet on sports and I make that in a week. And it doesn’t go up one month & down the next month like investing in a commodity. It just goes up (with slight fluctuations). If you’d like to get on board, email me at localhero100 at comcast dot net. As well as providing picks, I can direct you to solid, reputable sportsbooks.

  • Dean

    Tim, I bought silver on your recommendation and options on PTM when you made your platinum call. I really appreciate your insight and hope you continue to alert us to market distortions when you see them. I’m a very happy 4th Pillar subscriber.

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