Problems at the mines in South Africa, increasing demand due to the rise in auto sales and emerging markets like India and China will ensure that platinum and palladium outperform gold in the coming years.

According to BMO Capital Markets, robust demand growth coming from the auto catalyst market and other industrial applications, and a lacklustre and uncertain supply outlook, are projected to dramatically tighten the platinum group metals market into 2012.

Platinum group metals would benefit from their gold-like qualities, as investors continue to buy physical precious metals to protect against systemic risks associated with sovereign debt defaults, future inflation, and the US dollar.

The bank forecast the overall physical market for both metals to enter a deficit as early as next year, mainly due to production disappointments and labour issues in South Africa, and said upside risk is significant.

Recycled material and existing stocks, especially for palladium, will be called upon to balance the market, making PGMs prices very susceptible to investor sentiment and volatility.

BMO forecast platinum to average $US1636 a troy ounce this year and $US1800/oz next year, and palladium to average $US480/oz and $US525/oz.

However, it said, if supply does materialise as expected then there is a distinct possibility that platinum could peak at $US2400/oz and palladium could hit $US700/oz.

Recent examples of deadly accidents and shut downs are indicative of significant production challenges and vulnerabilities faced by miners in South Africa, the world's largest source of PGMs.

BMO said that inadequate investment in South Africa's infrastructure, frequent labour disputes in its mining and utility sectors, severe technical and safety challenges surrounding precious metals mining and a possibility of unfavourable changes in mining legislation are further causes for concern that supply won't grow as expected.

Leading platinum jewellery manufacturers in India have been targeting consumers in the age group of 20-40 years with high disposable income. Platinum jewellery items of various sizes, types and weight are available with almost with every mid-size jewellery maker and seller in tier-I and tier-II cities in India.

Platinum is up 15 percent this year and market researchers say that the demand for platinum may increase to 15 tonnes by the end of 2010-11 against 10 tonnes in 2008-09.

For platinum, India is an established market, particularly the southern region, where Chennai and Bangalore are the two most important markets. There are around 300 stores at present in India which keep platinum jewellery.

Platinum comprises 2-3 percent of the total jewellery market in the country especially in the wedding and engagement rings segment. According to the Bombay Bullion Association, India consumed around 940 kgs of platinum metal in the fiscal year 2008-09. The approximate consumption by various sectors in India is estimated to be automobile (55%), petrochemicals (25%), jewellery (15%) and electronics & dental (5%).

China South Africa India Gold