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Platinum: physical market looking tighter again, sell-off overdone?

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The price of platinum has been in the doldrums since this summer but looking at the tightness building up in the physical market it might be time to reconsider investing in this precious metal.

Whilst best known as a metal for jewellery, platinum is also used by car makers in catalytic converters, by other industries, and for investment.

Looking at platinum charts, after dropping to a 17-year low of $720 a troy ounce during the hight of the global pandemic prices have recovered in 2021 to a peak of over $1,200/oz. This summer has seen some renewed weakness in prices, back to a low of $830/oz, as ETFs unwound their positions and on-exchanges stocks accumulated. However, looking at the global supply and demand picture this price drop now looks overdone.

Platinum versus gold

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At current precious metals prices platinum is becoming much more appealing as a jewellery metal than gold which is trading at more than double its prices, at $1,720/oz. While some traditional jewellery buyers remain loyal to gold, a younger, trendier clientele is opting for platinum over gold, not only because of the prices but also because of looks. The wedding season in the US and Europe has been particularly positive for the precious metal and has boosted jewellery demand by 5% on the year. China normally plays a significant role here too but Covid-related lockdowns this year have temporarily eroded some of the demand in Asia.

The car industry has also been buying more of the precious metal (8% up on the year in the second quarter of 2022) as vehicle production is increasing and more platinum is required for parts for heavy-duty vehicles, particularly in China. In light duty vehicles, where they can, producers are swapping palladium for platinum after the palladium price shot up above $2,000/oz.

While China’s industry has been affected by lockdowns throughout this year, the country still imported higher than usual volumes of the metal, thus creating a tightness in the physical platinum market. This has been evident in the rise of lease rates which have peaked at 10% in May, higher than at the peak of the pandemic and significantly above the ten-year average. According to the World Platinum Investment Council, platinum demand from the transport industry is expected to increase by 14% on the year.

Gauging future demand

Though it is relatively straight forward to assess future demand from the jewellery and car industries, a large swing factor is investment demand, which in any given year can oscillate between 1% and 20%. Having gone through a pull out this spring and early summer investors are being attracted back by low prices and expectations of significant demand from the green transition.

“Platinum’s role in unlocking hydrogen’s crucial contribution to achieving global net zero targets is becoming widely known and offers an option to investors looking for exposure to this area,” said the WPIC.

The drive in Europe to reduce gas imports from Russia, as well as the recent passing of the US Inflation Reduction Act, will help boost the case for green hydrogen, which benefits platinum directly.

Although some headwinds remain in place in the shape of inflation and slower global economic growth, resilient physical demand for the metal will keep prices supported.

WisdomTree Platinum ETFs

Product NameISINExchange TickerListing Currency
WisdomTree Physical Platinum
Hargreaves Lansdown | Interactive Investor Charles Stanley Direct | EQi
JE00B1VS2W53PHPTUSD
WisdomTree Platinum 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00B2NFV134LPLAUSD

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

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