Will high price of gold lead to demand for platinum in India?
(November 12, 2012) - Gold has long been a staple in the jewelry industry of India, but recent increases in the price of gold have caused demand for it to drop due to the fact that it's priced in dollars; India's national currency, the rupee, has experienced a 25% drop in its value against the dollar. Since gold is now more expensive than platinum, many are deciding to buy platinum jewelry instead. This is something that will change the level of demand for the white metal within India, one of the world's most populous countries. With platinum price levels being lower than gold, and considering the importance of fine jewelry in India, this is a change that will have a real impact on investors who decide to hold platinum, analysts say. According to a recent report by Joseph Harry at Seeking Alpha, demand for gold jewelry has dropped 30% over the past year and China now leads the way as the nation with the higher demand for the yellow metal.
The change took place last year when the price of gold crept past that of platinum, shifting the market dynamics in India as a result. Now, Indians are looking to buy platinum and diamonds which, comparatively, cost less and still have the splendor that one is looking for in fine jewelry. With a stable platinum price that's been lower than gold for the past year, a 30% increase in platinum has resulted, with a 60% increase in platinum jewelry specifically sales within the same span of time in India. This is big news considering how large India is, as well as the fact that it is considered to be a developing world economy. It means good things for those who decide to hold platinum as part of their portfolio.
Platinum Guild International's Trade Manager, Vaishali Banerjee, told the press, "This is in the initial growth stage so we expect demand to grow over the next few years. We are looking at an overall 40 - 50% growth with some part from organic growth and other from market expansion for the coming season."
That alone would be excellent news for investors in and of itself, but there is another component to rising demand that does not involve fine jewelry. It turns out that the auto industry is experiencing a greater demand for platinum as a part of the production of catalytic converters. While the auto industry in Europe has yet to recover, observers believe it will and that when it does, it will join with strong markets in both China and North America. This means more platinum will very likely be needed for the catalytic converters that help keep emissions from vehicles less harmful to the environment.
While rises in demand in just one country aren't always going to signal an eventual price increase for a given precious metal, considering the intersecting rise in demand from India for jewelry and the rest of the world for catalytic converters, it is highly likely that platinum will see a rise in value. This makes one of the more often overlooked precious metals quite an enticing prospect for those who want to diversify their holdings and bring platinum on board. It will be interesting to see just how investors respond to these changes.