As Staple Commodities Rise, Speculation that All-time High Will Spur Inflation and Thus, Precious Metals Will be a Hedge Once More

Feb 25th, 2008

Reported by Kimberly Birkland

As crude oil is hitting an all-time high at $100 dollars a barrel, and soybeans, wheat gold, oil, and platinum to records that drove the UBS up 14 percent this year.  It rose to an all-time high on the 21st of February.  Platinum soared to an all-time high, and as other commodities are predicted to spur inflation, the investment in precious metals seems ever more alluring as a hedge.

Yuichi Ikemizu, head of commodity trading at Standard Bank Plc in Tokyo said by phone that "Crude oil is hitting $100 a barrel, corn, soybeans and wheat are hitting a record high every day, so precious metals are getting a lot of attention.  Declining U.S. interest rates are also encouraging investors to buy commodities rather than stocks, bonds, or real estate."

Platinum for immediate delivery rose to $37.50 to a record $2,206 an ounce, a 1.7 percent gain from late yesterday in New York.  

Consumer prices in the US rose more than forecasted in January, a government report showed Feb. 20.  Inflation in China is at an 11-year high.  (Bloomberg News)

Platinum has also taken a large benefit from the prediction that an electricity shortage in South Africa, which accounts for 80 percent of the world's platinum supply, will restrict mining.  This is an obvious assumption and prediction, given the past problem with the main energy supply facility in South Africa and the ongoing demands for more energy, meeting with lesser and lesser supplies.

Dennis Gartman, an economist and editor of the Gartman Letter, talked with Bloomberg's Ken Prewitt from Suffolk, Virginia, about gold, platinum, and palladium prices, and outlook for the corn market.  Gartman says gold may reach $1,000 within two weeks, (bloombergnews.com).

Platinum actually declined on speculation and forecasters saying that 14 consecutive days of record prices will actually curb the demand for jewelry made from the metal.  Palladium and gold also dropped. 

Jewelers use about 1.4 of the world's platinum and are the second-biggest consumers of the precious metal after carmakers, which include it in catalysts.  The amount of platinum used in jewelry declined for five consecutive years through 2007 as prices advanced, according to Johnson Matthey Plc.

Wolfgang Wrzesniolk-Rossbach said, "[jewelry demand] could easily be off by 30 percent this year."  Wreszniolk-Rossbach is head of marketing and sales at Hanau, Germany-based Heraeus Metalhandels GmbH.  That is also assuming the metal trades at the high price it has been for the rest of the year.  Heraeus own five precious-metal refineries.

Rhodium was left unscathed and unchanged today at a record $9,080 an ounce, according to prices from Johnson Matthey. 

References cited:  (Bloomberg News)