Platinum Prices Are Poised for a Pop

December 29, 2018

A major reason to consider buying platinum is that investors frequently get drawn to precious metals during periods of market stress, such as the turmoil we’ve seen recently in the markets. “Platinum prices are expected to rise over the next three months, dragged higher along with the entire precious-metals complex,” says a recent report from New York–based commodities consulting firm CPM Group. Put simply, falling share prices could lift platinum prices.

Growing geopolitical tensions could also prompt a jump in price. The rapidly changing political landscape of the Middle East concerns many investors, as does rising friction between Russia and the West, and tensions between the U.S. and China.

A possible rally in the value of the South African rand could help stem supply of the metal, helping to lift prices further. South Africa accounts for around 73% of global platinum production, according to data from London-based specialty precious-metals company Johnson Matthey.

A more expensive currency makes mining platinum a less profitable enterprise. While costs of extracting the metal remain roughly static, a rising rand reduces revenue in terms of local money. Expected interest-rate increases in South Africa next year will probably help boost the currency.

South Africa’s supply dominance could drive prices up for other reasons. “Any shock caused by unions, electricity outages, or earthquakes could result in a temporary shutdown in production and so impact the price,” says Will Rhind, chief executive of New York-based exchange-traded fund firm GraniteShares. South Africa’s platinum production was afflicted with similar events in 2017, “with producers continuing to experience sporadic disruptions to their mining activities, mainly due to safety stoppages and community unrest,” according to Johnson Matthey. A repeat shouldn’t surprise anyone.

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Platinum prices could also get a boost from a related metal, palladium, which has already been soaring in price. Like platinum, palladium is used in auto-catalysts. However, palladium costs 50% more than it did in mid-August. That may push car makers to switch metals. “If palladium is costing you more than platinum, then using platinum to produce cheaper catalysts has to be important,” says Rhind. In other words, a high price of palladium will help platinum.

Auto-catalyst demand accounted for 3.3 million ounces in 2017, or more than half of the global supply of 6.1 million ounces, says Johnson Matthey.

There are substantial risks in investing in platinum. The growth in the world economy will probably slow in 2019, crimping demand for catalytic converters in cars and reducing consumption of the metal. Just as a strong rand could help platinum prices, so a weak one could harm them. A weak rand, perhaps caused by dollar strength, would probably prompt the production of additional supplies of the metal.


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