Avoid buying platinum as jewellery this year

A word of warning to anyone thinking of buying their wife or girlfriend some jewellery this year: avoid platinum.

The gold price may have shot up to nearly $1,000 an ounce recently but platinum is now hovering at just over $2,100 an ounce and most analysts expect it to go to $2,250 or higher this year. The problem is that supply of the precious metal has been falling, while demand is rising, up 8.6 per cent last year.

There are three reasons for this: growing demand for catalytic converters, particularly in China; growing demand for platinum jewellery, particularly in China; and growing investment demand, particularly in… guess where.

The automobile industry accounts for over half of all platinum demand as the metal is a key component in catalytic converters. As China and, to a lesser extent India, upgrade their pollution laws to European levels there will be more need for these devices.

Meanwhile, South Africa, the world's largest producer of the metal, has suffered strikes by its miners and electricity shortages that have resulted in a production slump. Early estimates suggest that this situation will not improve in the short-term, leading to a continued deficit in the supply-demand balance. In this environment jewellery demand falls as it is more sensitive to price rises than industrial demand – as has happened recently with gold – but platinum has become the fashionable choice for wedding rings around the world and a lot of couples will get hitched in China this year. So, for those thinking of buying some jewellery and would rather not mortgage their house to do so, I'd suggest silver.

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