Platinum price falls below gold price as U.S. automobile manufacturer rescue package thrown out by Senate. Has platinum been oversold?
Platinum is trading below gold for the first time in almost fifteen years after news of the failure of the Emergency Bill that was aimed to rescue - or at least provide temporary support to - the "Big Three" automakers in the US. Although the passage of the Bill through the Senate was always expected to be troubled, the insuperable hurdle was the requirement to bring remuneration for UAW workers down to similar levels to those paid to non-unionised workers at other plants. All is not lost; the TARP (Troubled Assets Relief Programme) funds could be used to help the industry, although President Bush has so far refused to allow TARP funds to be used for any organisation outside the financial sector. The White House however, possibly significantly, has so far refused to rule it out.
The Bill would have provided short term funding of approximately $15 billion, with the possibility of longer-term financing. The companies had originally been looking for a combined total of loans /credit lines of $34 billion. As things stand now, Chrysler and General Motors are seeking $11 billion dollars between them through the recession, while Ford has said that does not need immediate help, but it might need a $9 billion line should conditions deteriorate. The Chief Financial Officer of Chrysler has said that it is nearing its minimal viable cash position and will run into problems with respect to paying bills next year. General Motors has also said that it may not have enough operating cash by year-end.
Meanwhile the PGM markets watch and wait.
The state of the auto markets has been a primary force behind the horrible slides in the platinum and palladium markets since they reached their peaks in 2007, as - for this year at least, this sector accounts for roughly 57% of global industrial demand for each metal (North American demand this year is likely to take up approximately 8% of world platinum demand and roughly 15% of world palladium demand)....MORE
*Here's a MarketBeat post from late November:
Precious metals ratios are far from a sure-fire indicator. But lately they are so out of whack that they are sending a bullish signal that may be worth watching.
Most closely eyed is the gold-to-silver ratio: the price of gold divided by the price of silver. It spiked to 84.4 in late October and is still high at 79.1, a level well above its historical average and not seen for many years. The higher ratio means that for every ounce of gold, investors now can trade much more silver. In other words, silver is historically cheap relative to gold. Platinum typically is more expensive than gold, but thanks to its decline it now only commands a 7.3% premium. In March its price was twice as high....MORE
I had a comment (what else is new?):
The last time platinum traded under gold I put on the trade and it worked.
Unfortunately it was very slow moving and the opportunity cost probably outweighed the profit.
I’ve got a buddy who is convinced the silver/gold 16:1 from 1878’s Bland-Allison Act and propounded by William Jennings Bryan (Cross of Gold 1896, etc.) is the ‘proper’ relationship.
Here again there is an “unfortunately”. We haven’t been close to that ratio since the first week of 1980, when he was ten and more concerned with whether Reggie Jackson would stay with the Yankees than with the bi-metallic standard. Fortunately he is a savant with bond prices....