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Could platinum shine again?

Platinum is seen as a symbol of prestige, rarity, and wealth. Yet, due to its industrial use, the metal is sensitive to investor demand and global growth. What is the outlook for Platinum?

Platinum, the silverish-white precious metal is popular for its industrial properties as it is one of the least reactive metals. It is also used as a store of value by investors due to its rarity and is considered a ‘safe haven’. It is also used by jewellers and watchmakers such as Patek Philippe, Rolex, Breitling and Vacheron Constantin due to its properties of not wearing out or tarnishing. In the 18th century, King Louis XV of France even declared platinum the only metal fit for a kind, due to its rarity. As a result, although it is not used as often as gold, it is seen as a symbol of prestige, rarity, and wealth. 

Platinum is obtained commercially as a by-product from nickel and copper mining and processing. Most supply comes from South Africa which accounts for around 80% of the world’s production. But Russia produces around 10% of global production. And, because of the war in Ukraine, many automakers using platinum as a component for catalytic converters decided to switch to other materials for fear of backlash and supply concerns. 

The platinum price throughout history has tended to be higher than gold during times of sustained economic stability and growth. And thus, in analysing the drivers we must understand the outlook for supply and demand, but also for global growth and the dollar. 

Technical analysis for platinum

The price movement of platinum is improving. 

plat

Platinum prices have been bolstered by speculation that China would relax its zero-Covid policy. The weekly spot prices have climbed strongly above an important moving indicator (20-ema), suggesting a trend reversal. However, it is evident that persistent and strong growth is required before becoming too enthusiastic.

Could a global slowdown weigh on platinum?

The perspective of a recession is an obvious downside risk for platinum which has typically sold off massively during severe downturns. 

For instance, it lost 70% in 2008 during the Great Financial Crisis and 30% in March 2020 during the Covid-induced crash. If investors begin to believe economic hard landing is obvious, platinum could re-price lower along with other risky assets as forecasted demand would fall. 

However, China’s attempt at reopening could add fuel to demand and support prices. In addition, central banks could also pull the foot off the pedal by ending tightening if inflation finally comes down to target. For the moment, high inflation in the US and Europe is prompting the US Federal Reserve, European Central Bank, Bank of England, and Swiss National Bank to hike interest rates and withdraw central bank liquidity. 

What is the outlook for the US dollar? 

Platinum, gold, and other commodities are inversely correlated with the US dollar. The trajectory of the US dollar in 2023 and beyond should influence platinum prices. The dollar should remain strong so long as the Fed continues to hold hawkish talks in which it projects raising interest rates to above 5%.

However, the green shoots are starting to form as the market believes the Fed is bluffing and will not hike interest rates this much. For that reason, the dollar has begun to retract, helping platinum gain traction. The dollar has fallen around 8% from its mid-October highs. It could be that the dollar gives back more of its gains this year, should US economic data deteriorate more rapidly than anticipated.

Conclusion

Platinum prices should remain stable if not push higher in 2023, helped by a weaker US dollar and perspectives of China’s reopening increasing industrial demand. However, a slowdown can not be ruled out, which has the potential to add more pressure on prices. 

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