LONDON: Gold and platinum prices approached parity on Monday for the first time since Dec. 2008 as a downgrade of the US credit rating and deepening fears over euro zone debt prompted investors to buy so-called safe havens at the expense of assets seen as higher risk.
Spot gold prices held within $10 of those of spot platinum for much of the morning, with the two metals bid at $1,705.80 and $1,723.69 respectively at 1112 GMT. Its average ratio over the last 20 years has been around 0.7.
"At the moment we are in an environment where people are adopting more deflation trades, pricing in recession risk," said Deutsche Bank analyst Michael Lewis.
"The US equity market has dropped more than 10 percent since its peak, which is the correction that normally occurs when you move into recession."
"We're not fully pricing in a recession yet," he said. "But we are seeing an out performance of gold relative to other industrial metals and precious metals, particularly the PGMs."
Although platinum is nominally a precious metal, its biggest consumers are industrial end-users, primarily carmakers, which use platinum group metals in catalytic converters. Industrial buying of gold is much smaller.
Gold hit a record $1,715.01 an ounce in early trade as a flight to safety saw investors exit assets such as stocks, industrial commodities and the euro in favour of nominally safer options such as gold and the Swiss franc.
World stocks racked up more losses on Monday on deep-rooted concerns about the US ratings cut, while commodity bellwether crude oil tumbled by as much as $3 a barrel and industrial metal copper fell to a five-week low.
Last time gold traded at a premium to platinum at the end of 2008, it did not manage to hold that level for more than two sessions. This time, the situation could be different.
"Platinum in the first half of 2008 was trading at relatively rich levels," said Lewis. "You had quite a substantial reprising over the second half of 2008."
"Now the danger is that this parity has occurred and we haven't priced in that recession risk yet. There is more risk that if we get negative data, it could sustain that discount of platinum for a longer period of time."
Copyright Reuters, 2010
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