Monday, August 8, 2011

Gold Prices

The price of gold Monday soared to new record highs and reached parity with sister metal platinum for the first time since the end of 2008.
Spot gold leveled with the complex's most expensive metal as it rallied to an all-time best of $1,715.29 a troy ounce on Standard & Poor's downgrade of the U.S. government's debt rating, which amplified investor jitters over the global economic outlook. Spot platinum, for its part, briefly fell as low as $1,703/oz, as fears over demand for the industry-linked metal kept the market under pressure.
The gold-to-platinum ratio, which measures how many gold ounces are needed to buy an ounce of platinum, has been sliding sharply as the price of gold benefits from economic turmoil, particularly in the U.S. and the euro zone. At the start of July the ratio stood at 1.15:1, compared with 1.24:1 at the start of the year.
While a ratio at or near 1:1 is seen as a good buying opportunity for platinum--demand for which could potentially drive the price higher and widen the ratio once again--analysts say the metals are likely to hold near parity in the near term as gold continues to benefit from global economic uncertainty.
"I can't see any reason for a reversal of this situation while Italy and Spain are vulnerable and there is the chance that other agencies will downgrade the U.S. Everybody is selling out of risk and the macro issues that are supporting gold remain," said Societe Generale metals analyst David Wilson.
Platinum and gold, both used widely by the jewelry industry, are the two most expensive traded precious metals, and are significantly more expensive than sister metals palladium and, in particular, silver.
Investors closely watch ratios between the precious metals, often examining shifts before deciding which metal represents the better investment. Some traders also play the fluctuating price differentials between the pair.
"On a historical basis, the ratio looks cheap, [and] if we were prepared to buy the ratio now and hold it for a year or two, it would probably be a good trade, given that platinum's fundamentals signal a lot more tightness over the medium term. But as investors struggle to make money in the short term, positioning for the medium term is in short supply," UBS analyst Edel Tully said in a recent research note.
Over the past 20 years, the spot price of gold has rarely overtaken platinum. The lowest the ratio has fallen during that period was 0.93:1 in October 1992.
The last time the metals reached parity was in December 2008 as the price of platinum sunk amid the global financial crisis and a collapse in auto demand.
Mitsui analyst David Jollie said the closer price levels now held by the pair will "be interesting for the jewelry industry in particular, where there is some competition between gold and platinum."
"We could, in China for example, see strong demand for platinum--often perceived as the more valuable metal--in the short term in response."