The Platinum Group Metals are apparently coming back into vogue among bullion investors. The two PGMs (platinum and palladium) are rallying more than their precious metal cousins of late, and the markets have responded.
Although they largely trailed behind gold and silver early in 2016, platinum prices and palladium prices have been the big winners after successive months of gains for gold and silver. After lagging behind, the Platinum Group Metals may now be attractive by comparison.
The Wall Street Journal points out that “The two metals recently closed out their best months in years. Platinum for October delivery rose 12% to $1,150.60 last month, its largest monthly percentage increase since January 2012.”
Meanwhile, “Palladium for September delivery rose or 19% to $709.75 for its highest monthly percentage increase since February 2008.”
Citi Research attributes the rebound for the PGMs to the fact that these markets are less crowded relative to the heavy bullishness that has now settled into the gold and silver trade.
Platinum vs. Gold
In fact, the new investment in platinum and palladium could actually be sapping some of the demand in the other precious metals. The steady gains for gold and silver have slowed of late even as their PGM brethren continue to trend upward.
Market strategist Bob Haberkorn of RJO Futures believes this is because platinum prices remain behind the price of gold. (Over the last two decades or so, platinum has consistently traded higher than gold until recently.) Investors looking for a cheaper precious metal alternative to gold see in platinum the added appeal that the metal may have the upside to revert back above the gold eventually. Haberkon characterized the market sentiment as “platinum being a bargain this far below gold.”
The chart above showing the platinum-to-gold ratio shows that the current levels are the lowest in at least 20 years. A ratio above 1.0 means that platinum is more expensive than gold. At times, platinum has even been more than twice the price of gold during that period.
Further evidence comes from the platinum-to-palladium ratio: the measure is also at its lowest in more than a decade. This likely indicates that platinum is undervalued (historically speaking) relative to the other two metals.
The spot prices for both Platinum Group Metals frequently will rise—and fall—in response to the automobile market. Both PGMs are used by auto manufacturers in catalytic converters in car exhaust systems. Encouraging car sales in Europe and China this year helped give an extra boost to the prospects for platinum and palladium, for example. This contrasts with gold demand, which is not closely related to changes in industry.
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.