Platinum price turns heads at hedge funds

January 21, 2018

Singapore (Jan 21)  After lagging behind other precious metals last year, platinum is finally outperforming, and hedge funds are taking notice.

Money managers increased their bets on a rally for platinum, a commodity used in pollution control devices for cars.

Investors had been pessimistic on prices until the start of this year, but that sentiment changed as signs of synchronized global growth boosted expectations for demand.

The metal’s strong correlation to gold is also providing support as a weaker US dollar propels alternative assets higher.

While platinum rose last year, it was a lackluster performance compared with gold, silver and palladium.

After Volkswagen AG admitted to falsifying pollution data for its cars in 2015, the outlook for platinum had dimmed as purchases of diesel-fueled vehicles fell in Europe.

Now, things are turning around as China starts implementing stricter emissions standards, fueling increased demand for the metal.

In the week ended on Tuesday, money managers raised their net-long position, or the difference between bets on a price increase and wagers on a decline, by 79 percent to 19,806 futures and options, US Commodity Futures Trading Commission data released on Friday showed. That was the highest since the middle of September last year.

Platinum futures have risen 8.7 percent this month to US$1,020.10 per ounce on the Comex in New York, compared with this month’s 3.5 percent gain for palladium, 1.8 percent for gold and a 0.6 percent slide for silver.

As consumption is poised to rise, stockpiles in warehouses tracked by the New York Mercantile Exchange have shrunk to the lowest since 2016.

This year, supply will probably outpace demand by 275,000 ounces, as jewelry and industrial uses climb, the World Platinum Investment Council said. The deficit is to widen from 15,000 ounces last year.


In South Africa, which accounts for more than 70 percent of the global supply of platinum, an improving economic outlook has spurred a rally in the rand against the greenback.

That raises the relative costs of producing metal, putting more pressure on South African mining companies already struggling to stay afloat, said Shree Kargutkar, a portfolio manager at Toronto-based Sprott Asset Management, which oversees C$11.5 billion (US$9.2 billion).

Investors are also piling into exchange-traded funds.

On Tuesday, the combined holdings of exchange-traded funds tracked by Bloomberg reached 2.54 million ounces, the highest since November 2015.

“That trend is definitely real, because it’s not one of those short-term blips that we see,” Kargutkar said. “Investors are looking at platinum as a store of value. In the short term, that will be the primary driver.”

Meanwhile, oil’s recent three-year highs are looking increasingly elusive as the week ends, with mounting fears that current prices will spark too much production all over again.

Futures in New York on Friday slid 0.9 percent to the lowest level in more than a week and posted the first weekly loss since the middle of last month.

“The higher the price is, the more production we are going to get out of the US, which threatens the price,” London, Arkansas-based energy researcher WTRG Economics president James Williams said by telephone. “We are in that threatening cycle right now.”

West Texas Intermediate for delivery next month on Friday dropped US$0.58 to settle at US$63.37 per barrel on the New York Mercantile Exchange. Total volume traded was about 11 percent less than the 100-day average. Prices are down 1.5 percent this week.


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