Forget Gold Or Silver: This Metal Is Headed For A Classic Supply-Driven Rally

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If you're thinking ofinvesting in gold tohedge against runawayinflation , then think again. 

It's not that gold is a badinvestment , but rather because there is an even better precious metal to invest in right now.

And no, it's not silver.

This metalwill be one of the most sought-after in the next year. You see, not only is it a precious metal, it's also an industrial metal. It's best known use is in catalytic converters in cars. 

And with Europe and other markets emerging from arecession needing new cars, I expect demand to pick up this year. 

But that's just the start... supplies are also dwindling.

I am talking about platinum. 

Earlier this year, Anglo American Platinum ( AGPPY ) , a major platinum miner, suspended activity at several South African mines.

The shutdown is expected to shave output by 400,000 ounces this year -- equivalent to nearly 7% of the world's total production, according to Bloomberg. Keep in mind, the platinummarket was already in adeficit , so idling these mines will widen the supply-demand shortfall.

Around this time last year, I predicted a sharp rebound for platinum in 2012 . And the metal delivered, posting a solid 9.8% gain for the year. 

But here's the bigger news: platinum has already rallied 9% in 2013, nearly matching last year's return in about four weeks.

And I think the rally is just getting underway.

You see, the rally started even before the mine shut down. And now, buyers have been even more enthusiastic. 

When a small miner scales back output, it barely leaves a ripple. But when the world's largest platinum producer throttles back, investors take notice. 

This is not an isolated event, either. Anglo American was having similar challenges coaxing platinum out of its South African properties last year.

South African miners have also been plagued by labor unrest and frequent power outages -- two setbacks that are more than just a minor irritation... They are ongoing disruptions that are crimping output.

But this particular disruption is deliberate -- Anglo American is downsizing its workforce and restructuring with an eye on profitability as industry costs escalate.

Aside from that, with platinum production costs rising past $1,500 per ounce in places (leaving a thinprofit margin of just $200), I expect to see other platinum miners scale back and abandon less profitable mines.

That will further trim the output from what is already an undersupplied market.

First Trust Global Platinum ( PLTM ) , which tracks the performance of a basket of leading platinum and palladium producers, has bounced 20% since the beginning of December. 

But thefund is still well below the $20 level from a year ago, despite the underlying metals advancing to new highs...

The fund could finally be about to bounce back after its fall...

Obviously, this instability is exerting upward pressure on prices as a supply shortfall looms.  

Action to Take --> It's important to remember that the price of platinum, like other precious metals, can be volatile. With that said, I still foresee a classic supply-driven rally in platinum this year, making it one of my top precious metal plays.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

Referenced Stocks: AGPPY , PLTM

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