Checking In on Platinum

Checking In on Platinum
How has Platinum weathered the storm?

When we last checked in on platinum back in the fall of 2019, the beleaguered metal was just embarking on its comeback tour and headed towards a bright 2020. So, given the volatility of this year’s events so far, how has platinum fared? Let’s look at what’s changed in platinum’s demand, supply, and price since last year.

Demand:
The Covid-19 pandemic caught every major economy in the world off guard. Demand for goods plummeted, and supply chains dried up. Shutdowns closed manufacturers and kept people (and their wallets) at home. Unfortunately, the slowdown spread to many of Platinum’s traditional demand drivers, too.

A series of automotive plant shutdowns around the world, in particular, plunged platinum prices in March to its lowest levels since 2002.
As a result, the World Platinum Council forecasts that overall platinum demand in 2020 will be 18% lower than in 2019 due to weakened demand in the automotive, jewelry, investment (ETF), and industrial segments.

But there is an upside: Platinum bullion demand surged in the first quarter of 2020 as investors flocked to hard assets on the wave of global economic uncertainties. In fact, investors bought platinum coins and bars at a 5 times higher rate than the average annual rate over the past 40 years.

There’s a silver lining for platinum demand on the medical front, too. Researchers continue to use the metal to combat some of the world’s most pressing health issues, including in the fight against COVID-19. Platinum is the material of choice for electrodes in blood gas analyzers, which are some of healthcare professionals’ most crucial tools in treating the Covid-19 virus in hospital patients. Platinum catalysts in the chemical sector are also used to manufacture personal protective equipment (PPE) and other disposable medical products, which have experienced unprecedented demand in recent months.

The more platinum can diversify its sources of demand, the more it will be able to weather economic disruptions in the future.

Supply:
Platinum is one of the rarest precious metals in the earth’s crust, with roughly 80% of the global supply mined from one area in South Africa. As one country primarily determines platinum’s fate, even a slight mining disruption can have an enormous impact on its global supply.

And that’s what happened this year. Platinum supply is down in 2020 as South African mines were forced to shut down temporarily to prevent the spread of Covid-19. Air travel restrictions further limited shipments of the metal to distributors worldwide.

In a “normal” world, even this temporary disruption to platinum’s supply would drive its spot price higher. But weak demand has outweighed the supply squeeze, resulting in a supply surplus as we head into the second half of the year.

Price:
The result of weaker demand and a supply surplus? A bargain platinum spot price. Platinum’s current spot price is currently hovering about $820 – nearly $900 lower than gold and almost $1200 lower than palladium.

If 2020 has taught us anything, it’s that there is no guarantee of what will happen in the future. But even with this year’s challenges, there is reason to believe that the fundamentals that made platinum attractive in 2019 still exist in 2020.

Here’s what we still know today: Platinum is not as reliant on its traditional sources of demand as it once was. Supply remains scarce, and its price remains at discount levels. Covid-19 doesn’t appear to be going anywhere. This means that a slower global economy, a worldwide pandemic, and volatile markets will continue to drive investors to the safety of precious metals, and platinum is no exception.

Now is the time to make platinum a part of your conversations with customers. Visit the World Platinum Investment Council to learn more about how platinum is an attractive source of long term investment value.

 

Disclaimer: This editorial has been prepared by Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.