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Heraeus Precious Appraisal

  • Edition 32 - 16 September 2019

The platinum price is up, but the fundamentals point down

By the start of September, the platinum price had rallied $100/oz (16%) in two weeks. There are a number of possible explanations for this rally.

Platinum ETFs have gained over 900 koz year-to-date. All the major regions have seen increases in ETF holdings and 120 koz have been bought in the first two weeks of September. Investors may now be considering that a mine strike is more likely in South Africa as an agreement has not been reached between the two largest producers and the mining unions, so talks have entered arbitration. However, in South Africa, ETF investors have been taking profits and selling some of their ETF holdings. In the first quarter, South African investors bought 418 koz, but since then they have sold just over 50 koz. The recent surge in ETF investment has been in the UK, with investors buying 112 koz in the first two weeks in September, and this may well be a reaction to the political turmoil around the UK’s attempt to leave the EU.

Platinum certainly is very cheap relative to gold and palladium. The premium of gold over platinum reached a record $678/oz in mid-August and is now $540/oz. Palladium’s premium reached $761/oz in July and is currently $648/oz.

Platinum’s fundamentals are not good. Autocatalyst demand has been declining for some time, as has jewellery demand in China, but the rates of decline have eased this year. Perhaps the view of investors is that all the bad news has been priced in and $800/oz is now a floor under the platinum price. Even with large flows into ETFs, the market is still expected to be in surplus this year.

Platinum’s sharp price rally is most likely down to short covering. The jump in the platinum price in late August took it to new highs for the year and moved it out of its trading range. The talk during New York Platinum Week was that commodity trading advisor (CTA) trading triggered around 500 koz of short covering.

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