Yesterday I said why I think platinum is a good buy at $900 an ounce. I still think that is the case but there is one thing one has to consider when investing in platinum. The rand.
The rand has a big effect on platinum because South Africa is one of the major platinum miners in the world, if not the biggest platinum “producer”. I dont actually have the statistics to prove it on paper, although i’m sure this is the case.
So how does the rand effect platinum?
The mine “producers’ pay their employers in rand while they sell the platinum in dollars (as far as i know). So when they sell their platinum for dollars and the rand is strong that means that one dollar would not pay the same amount of people working for the mining companies as it would when the dollar is worth more against the rand.
So how does this work then? I mean if the rand is strong the price of platinum goes up because it costs more dollars. This also means that when the price goes up it levels the grounds for the mining companies to pay the people working for them.
Now, if the dollar strengthens against the rand which is pretty much the same thing but if the rand falls to a really poor level against the dollar I would say platinum would then be cheaper. I think the theory is obviously people buy in dollars but now they the dolloar they make is less and that also means they have to pay their employees with a dollar that means less.
Producers however can also do something. When the rand gets too strong they can limit production. Thus, i guess, platinum prices go up, usual demand with less of the actual product. Demand drives prices up and thus the story goes.
This is not trading advice, this is me thinking about the price of platinum and what the rand does to it.