Platinum – Defying The Norm But For How Much Longer?

Platinum – Defying The Norm But For How Much Longer?
Written by:
Georgi Milenkov
3rd April 2017
Updated: 19th May 2020
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Nicknamed “rich man’s gold”, the metal is more expensive to produce than gold. It’s harder to mine, denser and has a higher melting point, and rarer than gold. Approximately 250 tonnes are produced each year, with 80% of world output coming from South African mines and Russia. This is compared to around 2,800 tons of gold produced each year from multiple mining sources worldwide.

Over the last 40 years, Platinum has spent the majority of the time trading at an average premium of $100 – $200 to the price of gold. However, in the last year platinum crashed to a £360 discount to gold, an all-time low, and the current discount of nearly $260 remains an obvious deviation from the norm.

World Platinum Council – Platinum is in a deficit

As of this year, platinum demand will have exceeded supply for the sixth year in a row, according to the World Platinum Investment Council. As in all precious metals, one of the determining factors that affects the price the most is investment demand. Simply put, while demand from industry and available supply are important factors each year, there markets move higher when a surge in buying overwhelms. In years when investors entered the market, price action strengthened, as was the case as Platinum reached all-time higher in 2008.

Where Is Platinum Now?

The relationship between Platinum and Gold can be measured with the so-called Platinum:Gold Ratio. Simply put, if the ratio is high, it means platinum is more expensive than gold. If its low, platinum is cheaper than gold.

The ratio is currently at 0.77, meaning platinum is still cheaper compared to gold than any other time in the last 25 years, a buy signal that many long term investors have been waiting for.

If you compare the current Platinum:Gold Ratio to the current price action, you can see that platinum is looking an extremely interesting potential:

According the World Platinum Council, overall demand from all sectors bar investment demand remains constant, whilst mining supply is slow and failing for a sixth consecutive year to narrow the deficit. Its not hard to recognise the situation as unsustainable, nor is it hard to identify that investment demand is one of the strong demand drivers that is currently lacking. After the most recent price decline in platinum, the precious metal looks poised to recover and move higher. All it will take is buyers who realise the fundamental and current technical opportunity.

Eventually, investors and traders will figure out that platinum currently offers a unique opportunity and investment buying will increase. The historical divergence has occurred for a couple of years now and the eventual correction will make the few investors who recognise the current opportunity a lot of money when it finally occurs.

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