Anyone Notice That Platinum Is Lower Than Gold?

The fact remains however that platinum is now significally less than gold. Really the only reasonable explaination for this is because platinum is an industrial metal and used in jewerly. When the economy heads down industrial output falls and people are not buying jewerly. Gold on the other hand will go up because it is considered to be a currency for all practical purposes and one that is very safe as compared to disintegrating fiat paper. This is why gold is considered a monetary metal and the rest are not.

 

Log in or Sign up to hide this ad.

Good luck finding any platinum coins for sale at these prices.

 

GoldMart has some 1 oz American Platinum Eagles in stock for $120 over spot. Not my cup of tea.. I'd be too concerned about an economic slowdown reducing demand, but can't argue it looks like a great time to buy the stuff.

 

Platinum is not a traditional coinage metal, and has never circulated widely in coin form. On top of that, there are relatively few mints that actually make platinum coins today, and all of those are geared toward a very small segment of the population, that is, collectors and bullion investors.

 

I don't think Platinum makes for a particularly attractive coin. They look too much like aluminium tokens to me.

 

Another thing to consider is...

...if the price of base metals declines due to lower demand
...and this results in a decline in future production
...and silver is a byproduct for many of those metals
...then, it is possible that the supply of silver will also fall, and that might be good for the price

 

Good point adn I agree sir except that this is only applicable to either further out years or if other metals fall much further. Even though metals like copper have fallen, they are still historically high and I believe well above costs of production today. So I am saying this is very true, but we are a far ways away from this affecting the price of silver today or the near future.

 

I generally agree, but even the decline we've already had must have an effect on some of the higher cost mining operations at the margin. I have no idea how to measure it.

 

Market prices will have to fall to the variable cost point before it will have much effect on production. As long as production covers variable cost and makes a contribution to paying fixed and sunk cost they'll chug on along. They have got to extract the stuff out of the ground sooner or later. Might as well be sooner if possible. Who knows waht type of Gov't inteference miners face in the future.

 

Every company has a different variable cost, and different variable costs depending on the section and grade of a deposit that they choose to mine. With higher prices, lower grades with higher costs are put into production and it is reasonable to expect they will be taken out of production now that prices are lower.

 

Most new gold today is strip mined out of large craters. The ore contains minute amounts of gold not visible to the eye. It's hauled out of the pit by CAT trucks that are so large there is a 2 story staircase to reach the cabin. This ore is dumped in a nearby production facility where it is reduced to dirt then processed to remove the gold. It takes tons of ore to produce an ounce of gold. They will pour the gold into rough bars where it is then sent to a mint for further refinement. It's pretty low cost if the volumes are maintained hence the incredible size of these places.

The link below shows a NASA photo the Super Pit mine at Kalgoorlie, Austrailia. It's large enough to be seen from space. Notice that it is as large as the nearby town. The white deposits are the left overs from the production process. If you look closely you can also see the production facility. It would be my guess that many of the Perth Mint products are produced from ore from this mine.

(warning, large file)
http://eoimages.gsfc.nasa.gov/images/imagerecords/42000/42763/superpit_ali_2010045_lrg.jpg

 

I did say as long as production covered variable cost. As for the sections and grade of deposits one chooses to mine - you do it now while Gov't regulations allow as you don't know what barriers may exist in the future.

 

All good posts. I agree with all three, that variable costs are all that matter really once a mine is in production, all of them have different variable costs, and most new mines and a lot of production is open pit leech fields.

Justafarmer touched on another aspect, and that is regulations. One serious downside to closing a facility is you lose grandfather status regarding permitting, something can keep mines open since this is a very serious concern to many operations.

I view prices of PM's today as still high enough to not affect variable profitability. I would say all mines have to be profitable today on a variable cost basis, since prices are still very high historically. I do think the recent silght downturn will be healthy for PM prices because sustained $40 silver and $1900 gold I believe would have seriously driven large amounts of additional production and curtailed usage further.

Of course I could be wrong.

Chris

 

Too bad we haven't gotten mercury coinage yet

Maybe once we enter the next ice age?

 

Lots of amalgams (mercury alloys) are solid at normal temperatures. You may be chewing on one right now.

Better yet, we could address our current velocity-of-money issues by adopting Larry Niven's Roentgen Standard...

 

There's one little wrinkle - one that's actually notorious in the gold-mining circuit: costs aren't fixed. This cycle, they're rising along with prices. As a single example, the price of oil affects costs a fair bit. That's why so may producers have been disappointing as stocks.

Beleve it or not, the best time to own the stocks of major producers was early on in the gold bull market. The AMEX (Now NYSE ARCA) Gold BUGS index was at 41.92 on Jan. 2nd, 2001. On Jan. 2nd, 2002, it was at 65.02. On Jan. 2nd, 2003, it was at 146.94. 2001 gain: 55.1% 2002 gain: 126%. That was the best two-calendar-year stretch the BUGS Index had in the last ten years.

Ever since then, rising costs have gnawed away at margins, which has sometimes been accentuated with forward-selling of production.

 

Try gallium...

 

Good point. People many times forget that mining in general is not a very good business as far as consistent profitability is concerned. So if you only watch PM prices, you can miss a lot.

 

There's also something else. Standard economic theory assumes that prices deviate from a fixed number. Except for Schumpeter, it doesn't take account of "demand revolutions" where the level of demand is continually increasing over a long period of time. When PMs are in a long-term bull market, a demand revolution is taking place. Rational economic theory says that suppliers should, if anything, restrict production in such a case so as to take advantage of higher prices down the road.

Of course, that strategy assumes we can know when the demand revolution ends - and we can't. So, reasonable mining managers - torn between boosting production and hoarding - tend to stick with the same production schedule and plow the added profits into exploration. Large sections of a producing mine are filled with ore that doesn't make the grade. At higher prices, those formations are worth a second look.

There's also exploring undeveloped properties, but the lead time is l-o-n-g.

FYI: in mining, a fairly good approximation of variable costs is "cash costs."

 

This is where economic theory and institutional behavior come into conflict. If your family owned a gold mine and this was the primary asset that had to sustain you and your children over a lifetime, then you would behave rationally and restrict production, mine the lowest grade ore that is economical, etc... to maximize the wealth derived from the mine and extend the asset life as long as possible. But for a public company, the goal is to show the highest possible profit to boost the stock price and executive bonuses in the relative short run -- so the tendency is to maximize production, mine the highest grade ore first, etc... In that sense, public corporations don't always behave the way economic theory suggests.