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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerWhy would you sell platinum and buy palladium? There are two main reasons. The first is that the spread (the price difference) between platinum and palladium has widened to over $1,000, making platinum extremely expensive.
Let's see if there is a reason for the widening of this spread. According to the Johnson Mathey's survey for 2009, there was deficit of platinum supplies amounting to 375,000 ounces, while there was a surplus of palladium supplies of 460,000 ounces. For 2009, Johnson Mathey is predicting the price of platinum in the $950 to $1,350 per ounce range and palladium to trade between $180 and $280 per ounce. We should mention that Johnson Mathey, the London-based metals firm, is one of the largest and most respected metals dealers in the world.
Secondly, according to Phillip Gotthelf, president of Equidex, automakers are switching to the use of palladium instead of platinum. "We see the spread as a significant opportunity" said Gotthelf. According to Johnson Mathey, palladium purchases dropped 3.6% last year, while platinum fell 8.2%. About half of the world's production of platinum and palladium goes into auto parts.
Spot platinum prices increased 38% this year with the London price at $1,295 per ounce. Palladium has rallied 35% to $254 per ounce. Notice that these prices are within the ranges predicted by Johnson Mathey for this year.
With the prices of platinum and palladium within predicted ranges, this spread recommendation may be a bit risky. Spreads often work best when prices go beyond expected ranges. This offers better risk/reward potential.
Would you do this spread?
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