platinum crystals

Platinum Still Trails Gold

May 23rd, 2016 by

platAlthough often overlooked relative to the silver and gold markets, platinum is primarily an industrial metal that combines beauty, rarity, and status as a precious metal. Not only are there developments worth watching in the platinum mining industry, but the metal could also offer interesting trading opportunities for bullion investors.

Platinum Shortfall?

One development to keep an eye on is the recent report that there could be a huge jump in the platinum supply shortfall. Due to a combination of falling mining supply and higher demand, the World Platinum Investment Council (WPIM) revised its annual shortfall projection by almost threefold to 455,000 troy ounces. Earlier this spring, the council had predicted just a 135,000-ounce shortfall. This view of an increasing shortfall was seconded by world-renowned platinum producer Johnson Matthey (JMAT).

2012-PlatinumProof-revIn addition to this revision, the WPIM reports that this year’s demand for platinum has seen a boost, particularly from increased buying in Japan. About 40% of each year’s demand made up by industrial purposes for the metal. During the first quarter of 2016, global platinum demand registered at 140,000 oz. The council says it will closely watch the release of the new Platinum Philharmonic coin by the Austrian Mint to gauge if there is stronger platinum demand in Europe.

Price Dynamics

Aside from the supply and demand fundamentals, the underlying price patterns for platinum may also be pointing in a bullish direction. This is evidenced by the gold-platinum ratio. Under most circumstances, platinum is the more expensive of the two precious metals because it is roughly 30 times more scarce in nature than gold is.

platinum crystals

Periodictableru (Own work) [CC BY 3.0], via Wikimedia Commons

However, since at least January of 2015, the gold price has exceeded the platinum spot price after the two came into virtual parity in the last few months of 2014. With no major news surrounding platinum nor any critical changes in the precious metals market, the two metals have continued this trading pattern in the year-and-a-half since.

Some experts point out that this situation can’t continue indefinitely. They believe that the platinum price will again be higher relative to gold, reestablishing the dominant trend. In fact, it could already be happening. The ratio has begun to fall, as platinum prices have surged 11% since the beginning of March.

Reviving Platinum Mining

no-miningBecause it is heavily influenced by industrial demand, platinum’s performance is also closely tied to the fate of platinum mines. In Zimbabwe, platinum is actually the third-largest export by earnings (behind tobacco and gold). However, the country’s leading mining industry association is telling the government that it needs about $2.8 billion in new investment in order to thrive.

The new investment could help push platinum to the country’s top export, the Zimbabwe Platinum Producers Association claims. Estimates are that the new infusion of capital could boost annual platinum production in Zimbabwe to 900,000 oz, double its current level, over the next five to ten years. Yet, until more investment is received, we could see sluggish platinum production, which is also supportive of higher prices.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.