Platinum stocks should outperform gold

Foord Asset Management (FAM) is urging investors to look to platinum stocks as a medium to long-term investment, despite the strong gold price.

According to Mike Townshend, resource analyst at FAM, supply and demand fundamentals are stable for platinum, and companies involved in its production are planning to increase volumes.

Both the introduction of new environmental legislation and the expansion of the Chinese jewellery market are expected to increase demand for the metal and taking these factors into account, Mr Townshend believes that platinum stocks will outperform gold over the next two to five years.

By comparison, many gold mining companies have declining production and at the same time have to provide for the increased costs involved in ageing mines and infrastructure.

South African gold companies in particular are experiencing substantial cost increases, as mines age and activities are carried out at deeper levels.

In addition, current wage settlements in the South African gold mining sector are above inflation.

Whilst the rate of decline in gold production is slowing, possibilities for future growth are unclear.

Sixty per cent of gold demand is driven by the jewellery industry, with the largest market India.

Here demand can be uncertain, as it depends on the success of the sub-continent’s harvest crops.

Having taken into account other factors, such as the benefit of by-products, including rhodium, ruthenium and nickel, Mr Townshend sees platinum companies in the enviable position of being able to generate sufficient money to both pay good dividends and finance growth.