US auto woes
led to platinum parity with gold
The collapse of negotiations
between the US Congress and representatives of
the US’s three largest automotive manufacturers
with a view to a bailout package has led to
platinum trading at a discount to gold for the
first time in fifteen years, precious metals
analysts GFMS said.
Both platinum and gold were hovering between
US$830 and US$850 an ounce by mid-December.
The passing of the bill would have been good
news for platinum producers, possibly pushing up
the platinum price along with investor
confidence in the precious metal.
Automotive industry demand for platinum, which
is used in catalytic converters, accounts for
50% of total demand.
Until late on December 11 it looked as if the
Bill might just scrape through, but it failed
when Senators notionally representing United
Auto Workers (UAW) leaders reportedly refused to
accept a 2009 deadline for UAW members to accept
reduced wages that would be in line with non-unionised
workers at import-brand factories.
General Motors, Ford and Chrysler currently have
an historic wage-reduction accord in place with
the UAW which lasts until 2011, and the union
has sought to delay the wage cuts until then.
"All is not lost, however. Legislators are
arguing that laws have been in place since the
Great Depression that allow the Federal Reserve
to make emergency loans to virtually any
important entity that has run out of options for
obtaining credit, and so it is possible that the
Bush Administration could legally provide
bridging finance," said Rhona O’Connell,
managing director, GFMS Analytics.
In her market commentary published in GFMS’s
quarterly newsletter, O’Connell said the bill
would have provided short-term funding of
approximately US$15 billion with the possibility
of longer-term financing, while the companies
had originally been looking for a combined total
of loans/credit lines of US$34 billion.
As things stand now, Chrysler and General Motors
are looking for a combined US$11 billion to see
them through the recession.
Ford has said that it does not need immediate
help, but that it might need a US$9 billion line
of credit if the position should weaken further,
while the chief financial officer of Chrysler
has said that it is nearing its minimal viable
cash position and will run into problems with
respect to paying bills next year.
Bills to suppliers amount to US$7 billion every
General Motors has also said it may not have
enough operating cash by year-end.
The US president has said in response to
questions that he has signalled that the White
House will consider releasing TARP (Troubled
Asset Relief Program) funds to help the
industry, but as of mid-December said the White
House was "not quite ready to announce that
The US Treasury is apparently in discussion with
all of the three largest automakers, while the
leader of the UAW has said that the union is in
discussion with the Bush Administration, but
that there has been no indication about any
"The markets are now therefore extremely nervous
once more, and it remains to be seen if and how
the situation can be, if not resolved, then at
least given some breathing space," said