Commodities | Nov 23 2006
By Greg Peel
As reported on Tuesday (Platinum Explodes) the platinum market has suddenly entered a period of extreme volatility following reports that demand will soon exceed supply for the metal used in car catalysts and electronic devices as well as jewellery.
But what really made the price take off was speculation that platinum would be the next metal to receive the exchange traded fund treatment. Equivalent funds in gold and silver helped those metal prices take off last year. The metal rose 5.5% to close at US$1254/oz on Monday night. On Tuesday night, the market rose another 7.6% to hit US$1350/oz in early trading.
Then came the reality check.
Why does platinum trade at a price far greater than its supposedly more “precious” counterpart, gold? Because it is far more rare. Why did the platinum price begin to move in the first place? Because reports suggested the market was about to move to a point where demand would outstrip supply. Why was there a lot of protest from the silver industry when a silver ETF was announced? Because it was worried there would simply not be enough silver in the world to fill the vaults needed to back an ETF contract.
Oh bollocks.
When experts came out on Tuesday night and suggested there was nowhere near enough platinum to support a platinum ETF the market woke up. The price collapsed to close down US$32 or 2% on the day, representing a 9.5% fall from the intraday high. The theme continued again last night, as platinum fell US$66 or another 5.5% to end at US$1156/oz. This is about the level it closed on Friday.
So if you’d had a few days off and came back today, you would never had known of the bizarre few days in the market.
Barclays Capital reports that volatility in the market is, unsurprisingly, extremely high, and bid/offer spreads are exceptionally wide. High levels of volatility are expected to prevail for a while yet, but at least traders have the Thanksgiving holiday tonight for some respite, allowing them time to sit down to lunch and wonder which one is the real turkey.