In a June 29 Barchart article, Platinum Fails- Time to Buy? I wrote:
Based on the price action over the past years, platinum is back in the buy zone well below the $1,000 level in late June 2023, and the odds favor a rally above the pivot point. However, it is impossible to pick highs or lows in any market, and platinum’s illiquid nature can cause prices to rise or fall to levels that defy rational, logical, reasonable technical, and fundamental analysis. When buying to trade platinum’s range, leave plenty of room to add on further declines as there is always a potential for a sudden downdraft. On the upside, short positions involve more risk, as a long-awaited bullish technical breakout could be explosive.
On June 29, nearby platinum futures were at the $904.20 level. After a brief rally that took the price over $1,000 per ounce, platinum again failed, made a lower low, and was near $900 on August 11.
Platinum is scarce and in deficit, but investors do not care
Total annual platinum production in 2022 was 190 metric tons or just over 6.1 million ounces. Gold output was over sixteen times higher at 3,100 tons or nearly 100 million ounces.
According to the World Platinum Investment Council, a trade association supported by some leading producers, the platinum market entered a period of consecutive deficits starting in 2023. While the WPC projects that the demand is outstripping mine supplies, investors have yet to respond, and platinum prices remain in a short, medium, and long-term downtrend.
The NYMEX Platinum futures chart highlights the long-term bearish trend that started at the 2008 high. Since February 2021, platinum continued to make lower highs and lower lows. From a short-term perspective, the bearish price action has continued in 2023, with platinum failing at the $1,000 level and falling below $900 per ounce briefly on August 8 and 9.
Russia and South Africa account for most output
The world’s leading platinum producers are:
Source: Statista
As the chart illustrates, South Africa was the leading producing country in 2022, with 140 tons or 73.7% of the world’s mine supplies. Russia was second, producing 20 tons or 10.5% of annual output. Russian platinum production is a byproduct of nickel output in the Norilsk region of Siberia.
South Africa and Russia are BRICS countries. The ongoing war in Ukraine, sanctions, the bifurcation of the world’s nuclear powers, and the potential for a gold-backed BRICS currency to challenge the U.S. dollar’s dominant role as the world’s reserve currency could create supply scarcity for countries supporting Ukraine.
Platinum has many industrial uses
Platinum is a financial asset, but it has many industrial uses. Catalytic converters require platinum and other platinum group metals because of their high heat resistance. Computer hard disks, thermocouples, optical fibers, turbine blades, spark plugs, pacemakers, fuel cells, dental fillings, and chemotherapy drugs treating cancers require platinum.
While the demand for these products is growing, the WPC states that “electricity shortages in South Africa and sanctions against Russia” continue challenging worldwide supplies.
The reasons why investors have steered clear of the metal
The bearish trend over the past decade and a half indicates a lack of investment interest in the metal for the following reasons:
- The price failure that took platinum 67% lower from a record $2,308.80 high in March 2008 to a $761.80 low seven months later in October 2008 left a bad taste in many investors’ mouths.
- Platinum futures are illiquid compared to gold futures. As of August 9, the total open interest in NYMEX platinum futures was 83,346 contracts or 4,167,300 ounces compared to 429,883 contracts or 42,988,300 ounces of total open long and short positions in the COMEX gold futures market. While platinum is sixteen times rarer than gold in total annual output, open interest is over ten times smaller. Illiquid markets tend to gap higher and lower as bids disappear during selloffs and offers evaporate during rallies. Low liquidity inhibits investor and speculative interest in markets.
- Platinum’s long, medium, and short-term bearish trend has caused a lack of interest in the metal as a financial asset.
With many investment options, platinum has yet to capture the interest of market participants for over fifteen years. PPLT is the platinum ETF- Only buy on weakness
Platinum remains the precious metal that has underperformed the other precious metals that trade on the NYMEX and COMEX futures markets.
- Nearby gold futures settled at $288.50 per ounce at the end of December 1999. At $1916.60 on August 10, the price was 564.3% higher.
- Nearby silver futures settled at $5.413 per ounce at the end of December 1999. At $22.790 on August 10, the price was 321% higher.
- Nearby palladium futures settled at $449.20 per ounce at the end of December 1999. At $1,297 on August 10, the price was 188.6% higher.
- Nearby platinum futures settled at $430.20 per ounce at the end of December 1999. At $908.20 on August 10, the price was 111.1% higher.
Platinum has been the worst-performing precious metals futures market of this century. A platinum requires a contrarian approach. While the most direct route is physical platinum bars and coins, the Aberdeen Physical Platinum ETF product (PPLT) is a liquid product that moves higher and lower with platinum prices. At $84.07 on August 11, PPLT had around $888.4 million in assets under management. PPLT trades an average of 82,706 shares daily and charges a 0.60% management fee. The Granite Shares Platinum ETF (PLTM) is smaller than PPLT, with each share representing 1/10 of the larger PPLT ETF. At $8.85 per share on August 11, PLTM had $35.1 million in assets, trades an average of 52,794 shares daily, and charges a 0.50% expense ratio.
Platinum has continued disappointing investors seeking capital appreciation, but the metal’s illiquid nature and the growing deficit could eventually ignite a significant rally breaking the fifteen-year bearish trend. Until then, buying platinum after downside corrections and taking profits on rallies above $1,000 continues to be the optimal approach.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
