Platinum to Outperform

The World Platinum Investment Council’s newest quarterly report expects platinum market deficits through 2024 following a 2023 deficit of 878,000 ounces. Much like its fellow industrial precious metal counterpart silver, platinum generally outperforms in bull runs.  On the 5^th of March the ratio XAU/XPT turning down means platinum is now starting to outperform gold. Could the fundamentals be changing for platinum to finally see it start outperforming gold?

World Platinum Quarterly Report

The World Platinum Investment Councils latest quarterly report sees a 418,000oz supply deficit following 2023 deficit of 878,000oz.  In fact, in the last 10 years platinum has only seen 4 years in surplus.   With demand increasing within industrial and automotive industries and supply estimated to fall 1% these deficit years look to continue.

Pricing not following Fundamentals.

So with year on year of deficits why has platinum been underperforming? In 2023 platinum prices fell 9%, going further back, it’s down nearly 20% over 3 years.  One of the main uses for platinum is in catalytic converters, during Covid with automakers unable to source semiconductors, manufacturers underproduced 30 million vehicles and began stockpiling materials.  The WPIC identifies this as the main reason for the lower price and current range trading stating;

‘We believe this is a function of range-influenced algorithmic trading and automakers’ management of excess platinum inventories, accumulated when they underproduced more than 30 million vehicles as a result of the pandemic and the semiconductor shortage.”

“Range-bound trading will likely continue until price breaks out of that range, but we estimate that the automaker inventory management process is close to having run its course.”

With the stockpiles dwindling and deficits growing, will fundamentals finally start lifting platinum’s price?

XAUXPT

Like silver, platinum often performs better compared to gold in bull markets. The current XAUXPT chart shows platinum’s underperformance compared to gold since Covid with the ratio currently reaching above 2.4. During the Covid precious metal bull run the ratio got as low as 1.4, with gold currently $105,000/kg, to catch up to this ratio low platinum’s price would need to grow from $45,000 to $75,000 a 65% gain from its current price.

On the 5^th of March this ratio again turned down indicating this could be the start of platinum’s belated price climb.

Platinum Underinvestment

Platinum is hard to mine and hard to refine but with pricing not following fundamentals, mine and recycling supply will continue to dwindle with inadequate investment.  This means in the short term even if the price does start to turn up, supply is very inelastic and is likely to take years to come online.  This creates the possibility of a demand squeeze that may see prices spike in the short to medium term before new sources come online. Remember platinum is integral not just to catalytic converters for combustion engines, but also to green energy Hyrdrogen Fuel cells. There has been a lot of press lately about a pull back from the ‘all EV’ narrative as their shortcomings become more understood. Toyota and other are clear that hybrid and hydrogen are the way forward and platinum benefits in both.

Platinum’s time to shine

In 2008 the XAUXPT ratio was 0.5, meaning 1 kilo of platinum was worth 2 kilos of gold. With the new bull run in precious metals, deficits building and supply dwindling will we see platinum regain its status as the most expensive precious metal?