Gold Spikes While other PGM’s Remain Quiet

By most any measure, the magnitude of last weeks financial Sturm und Drang in the stock market was breathtaking. It offered a peek at the extent to which the world has squirreled its acorns into paper instruments of finance.  Markets and confidence are in what we chemical technology people might call an “upset condition”.

It is interesting to note the recent price phase relationship between Gold/Silver (Au/Ag) and the rest of the Platinum Group Metals (PGM’s). Gold and silver underwent dramatic price spikes this last week while the other PGM metal prices were umoved. Since the earlier part of ’08, Platinum (Pt), Palladium  (Pd), Ag, and Rhodium (Rh) have been in a major price decline from recent all time high prices. Even Au bullion prices has been in somewhat of a decline until last week.

But the recent collapse of the sub-prime mortgage market has caused many investors to flee securities in favor of gold and to a lesser extent, silver. There is absolutely no surprise here. This is expected. But what is interesting to metal watchers is the behaviour of the other metals in this epic time.

All of the PGM’s- Au and Ag included- have at least some industrial uses. So, prices have an industrial demand component. But only Au, Ag, and Pt prices are strongly driven by numismatic and jewelry demand. Yes, Pd and Iridium (Ir) may have some price sensitivity owing to their use for jewelry alloys. But consumers demand gold, silver and platinum jewelry by name and this exerts powerful leverage on the prices of this subset of PGM’s.

Investors seek refuge in Au and Ag during times of economic uncertainty. As a result, prices tend to go high.

The substantially industrial metals- Pd, Rh, Ir, Ruthenium (Ru), Osmium (Os), and Rhenium (Re), as well as the mixed use metal Pt have a different kind of demand picture. When industry is meeting strong demand for their goods and services they, in turn, apply business-to-business demand pressures on the PGM market and, ultimately, the mines.

The non-jewelry members of the PGM group are strongly associated with metallurgy and with industrial and consumer catalysts. Examples of metallurgical applications include Re/Ru alloys for jet engine turbine blades, Ru conducting layers in semiconductor chips and components for disk drives.  Industrial catalysts are used extensively in chemical processing- fuels to pharma- while consumer catalysts (Pt & Rh) are largely manifested as mandated automotive catalytic converters. Rhodium is also used in hydroformylation processes. This and other arcane applications are largely unknown to most consumers.

As if to highlight the perversity of nature, the PGM metals are among the most useful metals in nature for catalytic application- Rhodium and Platinum in partcular. I will groan audibly when I hear that Pt prices have inched upwards due to strong demand from the jewelry sector.

In times of high consumer demand for the products whose manufacture requires these metals, prices trend upwards with PGM scarcity.  PGM’s are mined in a relatively few lucky locations around the world: South Africa, Russia, and Canada predominantly.

As we are witnessing, investors tend not to flee to Rhodium or Osmium in times of economic upset. The take home lesson in this is mainly for industrial procurement folks. Now is a good time to stock up on PGM catalyst metals. That is, of course, if you can convince the hot shots with the MBA’s.

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About gaussling

Gaussling is a senior scientist in the chemical business. He occasionally breaks glassware and has been known to generate new forms of hazmats. Gaussling also digs aerospace, geology, and community theatre. View all posts by gaussling

3 responses to “Gold Spikes While other PGM’s Remain Quiet

  • Observer

    The recent declines in precious metals can be attributed to the deleveraging of large positions in other areas (CDS/financial stocks, etc.). When you need cash to cover margin calls, you sell your winners. That being said, it’s also the case precious metals appreciated in lock step with oil prices. Oil prices (as it is now commonly know) were manipulated upward by an eclectic consortium of oil refiners, investment banks and others. (i.e.-the refiners likely provided false inventory statements to indicate shortage when there was none.)

    It was on the day the gov’t announced an investigation of the commodity markets that the price of oil began its decline.

    Thus there is a tug of war now between the deflationary forces unleashed by dimming economic activity and the inflationary fires stoked by the bail out plan.

    As far as I know, gold and silver have never lost all of their value in the last 2000 years. The same can’t be said for our currency.

  • Hap

    More naivete (mine, not yours)? The value of useful PGM metals should depend on economic activity – the diminishing variable – while the value of gold (well, other than in generating JACS/Org. Lett./Angewandte papers) shouldn’t. The activity should (theoretically) factor into the price of other PGM metals, and should slow their rate of price increase relative to gold.

    Oh, and image. Kind of like diamonds.

  • gaussling

    Hello Observer-
    “That being said, it’s also the case precious metals appreciated in lock step with oil prices. Oil prices (as it is now commonly know) were manipulated upward by an eclectic consortium of oil refiners, investment banks and others. (i.e.-the refiners likely provided false inventory statements to indicate shortage when there was none.)”

    Can you cite a reference for this statment? I would be interested in looking into this further.

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