Platinum, with its price close to the lowest level in nearly a decade, might soon attract the interest of bargain hunters.
âPlatinum has some significant upside potential from current levels, as a result of its overall industrial usage and within autos,â says Ed Egilinsky, managing director of Direxion. âPlatinum currently trading both below gold and palladium makes it attractive from a pure price standpoint, as historically platinum has traded at a premium to both.â
Futures prices for platinum
which settled at a 9Â½-year low of $813.40 an ounce on Monday, climbed back to $841.40 on Thursday, but theyâre still around 33% below gold and roughly 11% lower than its sister metal, palladium. On Thursday, gold futures
Â settled at $1,258.80, while palladium
Â closed at $942.70.
Platinum has slid more than 13% this year; while palladium is about 12% lower. Egilinsky says both have been pressured by trade tensions and the prospect of higher electric-vehicle adoption, which would lead to less demand for the metals in the catalytic converters used to curb emissions from gasoline- and diesel-powered engines. A trade war with China, one of the metalsâ biggest consumers, can âcertainly be an influence on prices,â he adds.
Adrian Ash, director of research at BullionVault, however, says: âPlatinumâs price drop really comes down to the diesel emissions scandal and the damage itâs done to forecasts for diesel vehicle growth world-wide.â Volkswagen
Â admitted in 2015 that it had equipped certain diesel cars with software that circumvented emissions standards. About 40% of platinum goes into diesel catalysts each year, and âtraders have fixed on that story and the bad sentiment itâs built toward the metal,â says Ash.
At the same time, âbattery-electric vehicles keep making headlines,â he says, as âcity mayors and governments everywhere keep setting deadlinesâ for a ban on cars with internal-combustion engines, and vehicle manufacturers keep announcing new electric-vehicle models. âThe death of diesel is becoming a nailed-on certainty, if you skim the headlines. That continues to whack the price of platinum,â Ash says.
But this ignores the other 60% of demand, which includes other industrial uses and jewelry, plus likely stronger growth from emerging Asia, as China and other nations tighten emissions limits, he points out. Indeed, the GFMS Platinum Group Metals Survey, released in June, pegged the 2017 amount of platinum used in auto catalysts at 3.48 million ounces, 7.1% above 2016âs level.
Historically, platinum has generally traded higher than gold, but the last time that relationship held was in early 2015. And last September, palladium traded above its sister metal, platinum, for the first time since 2001.
âI think [platinum] is a better value than gold right now,â says Chris Gaffney, president of World Markets at TIAA Bank. âThe emergence of a large middle class in both China and India will continue to support the automobile sector, and demand for platinum should continue to increase, especially if/when we see manufacturers switching from palladium into platinum for pollution control.â Platinum is a âbetter catalystâ in many pollution control applications, he says.
Gaffney also notes that platinum is âdenserâ than gold, and has a much higher melting pointââmeaning it is stronger and is better for some industrial applications.â Itâs also more difficult to mine and more expensive to produce than gold and is rarer than the yellow metal.
Given that platinum is both âan investment and industrial metal,â global economic growth, as well as central bank interest-rate policies, will have a major influence on it, says Gaffney. He expects higher interest rates and global trade worries to âkeep a lid on precious-metal prices in the second half of the yearâ and doesnât see a âbreakoutâ for precious metals until thereâs âhigher inflation or a solution to the current trade tensions.â
For now, âmaintaining a well-diversified portfolio with an allocation to precious metalsâ is likely the best investment approach, Gaffney says. âRight now, I prefer to own platinum and silver over gold and/or palladium.â
A version of this report appeared on Barrons.com