Is Platinum Bullion An Overlooked High Potential Investment Prospect?

Sat Sep 30 2023

For the modern retail investor, platinum is an asset that has probably never been considered as it is not one that is covered by mainstream investment media channels. But this could be a sign that platinum bars and coins are extremely cheap and offer huge upside potential. A deep dive into the current state of the platinum physical market will help to evaluate this precious metal.  

The platinum spot price has been in a trading range for two-years which has hardly drawn much excitement into the sector. According to London-based bullion dealer Auronum, the market for platinum could be in the process of improving. 

A spokesperson for the company confirmed “we are seeing much stronger platinum demand, especially with investors looking to pay a premium for platinum Britannia coins which are the most popular platinum coins in the UK. The market seems to be more optimistic on platinum at these low-price levels”. 

Signs that investors are willing to pay higher premiums to secure physical platinum can duly be a signal that there is a strong floor underneath the platinum price and that a higher price is very likely to be seen over the coming 12-months.

A recent industry study conducted by the World Platinum Investment Council found some encouraging signs for the platinum investor. Official data shows platinum supply was down 5% in Q2-23 from Q2-22, this is mostly due to a decline in overall mining output in the number one producer South Africa. Platinum recycling was also lower by 12% year-on-year. Recycling was also 8% lower in Q2-23 from Q1-23 due to scrap auto catalyst supply chain challenges. 

Platinum is sensitive to supply changes given that its deposits in economically viable mines are very concentrated when compared to gold and silver. An issue with operations at major mines can cause the price of platinum to increase whereas gold’s mines are so geographically diversified that a local disruption does little to the spot gold price. 

Demand for platinum has some indications that the platinum price should be relatively well-supported by buyers over the coming year. As with many commodities, this precious metal is extremely sensitive to developments in Asia. 

China is important to most commodities and the demand for them. Platinum is no exception and can see its price rise or fall depending on how optimistic the markets are on China’s economy. Given the industrial link, platinum prices can rise when markets are bullish on China’s economy whilst an economic crisis is likely to cause platinum prices to crash as was seen in 2008. 

Regarding the Chinese economy, the regional lockdowns seen in 2022 reduced demand prospects for platinum, the reopening of these regions in 2023 was expected to be a tailwind for platinum demand but the latest data does not support this. China’s reopening did very little to boost jewellery sales as platinum jewellery demand fell 2% year-on-year. The exact reason for this is unknown but it is possible that Chinese households are seeing a reduction in disposable income or that they are choosing to invest in gold bullion instead.

Helping to offset the lack of Chinese platinum growth was the boost that buyers gave by increasing their purchases. Data shows that investment demand for platinum bars and coins increased by 300,000 ounces year-on-year in Q2-23. This is a sure sign that the low price environment is attracting buyers to the market. 

Crucially, 2023 is projected to produce a 1 million ounce deficit after two years of surplus, which sees a swing of 1.7 million ounces in 2023. This deficit is unlikely to jump to a surplus in 2024 unless platinum prices rise significantly from current levels. Recycling is likely to remain muted if platinum prices continue to flatline or move lower because many potential sellers of recycled platinum are likely to delay sales in the hope that prices will increase. 

Demand for platinum is expected to remain steady given that 90% of all vehicles sold in Europe contain platinum in their exhaust treatment system despite the growth of electronic vehicles. Part of the reason to why platinum demand has not been as strong as some hoped is the reduced production of cars due to the shortage of microchips. 

This was a situation that first came after the lockdowns but the war in Ukraine added to the problem. A recovery in microchip production will allow for more cars to be made, in which platinum is an important component. The car manufacturing sector is likely to rebound which will increase demand for platinum. 

The main headwind for platinum is likely to be the sustained inflation eroding consumer purchasing power. This will have an impact on the jewellery trade and will likely also reduce the saving rate which will mean that the pool of funds available to purchase platinum bars and coins shrinks. Until household disposable income improves from current levels then platinum bullion will continue to compete heavily with other popular investment themes. 

Source: https://www.msn.com