Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Should Platinum Be More Expensive Than Gold?

Commodities / Gold and Silver 2017 Jul 14, 2017 - 12:10 PM GMT

By: Arkadiusz_Sieron

Commodities

Platinum is one of the rarest elements in the world, much rarer than gold. This is why historically the white metal has been more valuable – just think of platinum credit cards which offer greater privileges and prestige than the gold ones. However, the ‘little silver’ has recently been traded at a discount to gold, as one can see in the chart below.


Chart 1: The platinum-to-gold ratio (the price of platinum divided by the price of gold, red line, right axis), the price of gold (yellow line, left axis, London P.M. Fix, weekly average), and the price of platinum (blue line, left axis, London P.M. Fix, weekly average) from April 1990 to June 2017.


Does that imply the right moment to buy? Let’s figure it out, analyzing the supply and demand dynamics of the platinum market.

Supply

The above-ground stocks amount to about 2 million ounces, which corresponds to only about one-third of annual mining production and about one-fourth of total supply (almost 2 million ounces are recycled, mostly from end-of-life automobiles). Importantly, about 70 percent of global platinum is mined in South Africa (in particular, in the Bushveld Igneous Complex). The rest of the metal comes from Russia (12 percent), Zimbabwe (8 percent), and North America (6.5 percent). The concentration of platinum production in emerging nations implies that the white metal may be prone to price spikes due to supply disruptions. Given all the problems challenging the mining industry in South Africa (labor strikes, constraints of power, low spot price of platinum and reduced capital expenditures), the supply of “rich man’s gold” is not likely to increase meaningfully over the next few years.

Indeed, in the first quarter of 2017, the total platinum supply was 1.75 million ounces, a decline of 4 percent year-on-year. Based on that dynamic, the supply of platinum is projected by the World Platinum Investment Council (WPIC) to decline by 2 percent from 7.9 million of ounces in 2016 to 7.7 million ounces this year. The drop in the supply of the white metal is supportive for its price.

Demand

Total demand for platinum in 2016 amounted to about 8.3 million of ounces. It was made up of four core segments: automotive (41.5 percent), jewelry (31 percent), industrial (21.4 percent), and investment (6.1 percent). As one can see, platinum is an industrial metal rather than a monetary metal like gold. The greatest part of demand comes from automotive catalysts which are used to reduce the harmfulness of emissions. Hence, platinum prices are heavily dependent on auto sales and the situation in that sector.

In the first quarter of 2017, global demand was about 2 million ounces, down 1 percent on an annual basis. Global demand is projected by the WPIC to drop 6 percent this year, mostly because of declines in industrial use (due to refinery capacity closures in Europe and Japan – industrial demand comes mainly from chemical and petroleum refining catalysts) and investment demand (as the price stabilized).

According to Johnson Matthey, global demand for platinum in autocatalysts is forecast to shrink by 5 percent this year due to the Real Driving Emission legislation. It would require a wider use of SCR technology, which uses relatively low amounts of platinum relatively to the platinum-intensive NOx absorber catalysts. Hence, there might be a decline in use of the white metal in European diesel cars, which is the largest source of demand for platinum (the white metal is essential for catalytic converters used with diesel engines).

Market Balance and Price Outlook

With the total supply of about 7.9 million ounces and total demand of about 8.3 million ounces, the market balance was again at a deficit of about 0.4 million of ounces (the recent platinum deficits have been met by the reduction of inventories or sales from unpublished investors’ holdings). However, although the market remained in deficit, the gap between demand and supply narrowed, as the chart below shows.

Chart 2: Platinum demand (blue line, left axis, in thousands of ounces), platinum supply (yellow line, left axis, in thousands of ounces), and the net balance (green line, right axis, thousands of ounces) from 2004 to 2017 (the values for 2017 are projected).


And the net balance between demand and supply could shrink further this year (or even turn into surplus), as slower growth in vehicle production, declining diesel share and new emissions regulations stimulating less platinum-intensive technology may dampen demand for the white metal more than the likely drop in the supply.

Therefore, the price of platinum could remain traded at a discount to gold. Many analysts believe in a reversion to the mean, but history does not have to repeat itself. The price of platinum does not have to be always higher than gold just because it has been traded with a premium in the past. Platinum is a more industrial metal, while gold behaves better during times of uncertainty as a safe-haven. Hence, the low ratio between platinum and gold may simply reflect the level of low economic confidence among investors. And new technologies now allow making new catalytic converters with less platinum and to recycle more of the white metal from the reclaimed materials.

On the other hand, in the case of a surprisingly strong global GDP growth, the price of platinum should rise. However, even if auto sales are strong, diesel cars should continue to lose their appeal (investors should be aware that consumption of diesel in China declined in 2016 for the first time since the early 1990s), hurting the demand for platinum. Moreover, investors should remember the long-term risks for platinum: the transition towards electric cars would slash the demand for platinum.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in