If you think platinum and palladium were unscathed by the seemingly disastrous drops in gold, silver, oil, copper, etc., you’d be mistaken. Before the big drop was over, both of the major Platinum Group Metals (PGM) fell hard, but not as hard as gold, relatively speaking.
Starting the month of April at around $1600, platinum hit a low of $1378 on April 16th. The metal had been as high as $1734 earlier in the year, but had some downward pressure before the big drop in mid-April. Since, platinum has recovered to back around $1460, which is still well below the high set in February.
Palladium’s story is similar – prior to the crash, it stood at $781. Before it was over, palladium had dipped to around $650, but has seen an impressive rally back to $750.
How similar are the PGM metals to gold?
Since the PGM market is smaller than gold, it tends to not receive as much attention. The last few weeks have seen an abundance of articles debating whether the bull market for gold was over – some emphatically say yes, others argue otherwise.
While there is some relation between PGMs and gold, each has its own market and driving factors. Commenting in a Forbes piece on the big price crash, commodity strategist Philip Petersson says platinum and palladium were victims of “…guilt by association.”
Beyond a commodity to hedge inflation, the gold and PGM markets are much different. Platinum and palladium are heavily used in the automotive industry. Increasing auto demand in China and the U.S., factor in PMG investment. Demand for platinum jewelry, rather than gold, is also boosting demand in India.
But the real potential behind PGMs is how supplies aren’t able to keep up with demand.
In 2012 for example, platinum production sank 13%, which led to a supply deficit of 375,000 ounces for the year. It’s expected that demand will be met this year, just barely. Palladium supply is even more strained, with a deficit of 1.7 million ounces in 2012 and a projected deficit of 1.1 million ounces for 2013.
(To learn more about these supply issues, read Outlook for Platinum Bullion: A Solid, Long-Term Investment and Palladium Bullion – Further Diversifying your Portfolio for more)
What’s the outlook for PGMs?
Over the long-term, many expect platinum and palladium to do very well. Supply issues (S. African labor disputes) coupled with a growing demand certainly spell a recipe of sustained gains over the long-term.
And while concerns about inflation seem to be waning a bit, many investors view metals like palladium bullion in the same light as gold.
However, there are dynamics that could hold PGMs down, and impact growth potential as well.
One is the current sentiment – many investors are turning away from commodities and opting for equities instead. As you probably know, the stock market has been doing very well this year, and to some degree, this has come at the expense of gold, silver, platinum and palladium.
Another negative influence is lagging auto demand in Europe – a recent report showed auto sales were down by over 10% year-over-year in March, marking the 18th straight decline! The fundamentals are still strong though according to Johnson Matthey, a refiner of palladium and platinum bullion.
In their recent survey, Johnson Matthey forecasts platinum to average $1570 in the next six months – it will trade in a range of $1475-$1710. Palladium on the other hand is expected to average $740 in 2013, and trade in a range of $635-$830 over the next few months.
Some analysts in fact expect both major PGM metals to outperform gold due to the limited supply. Gold is mined all over the world while PGMs are only found in 3 or 4 countries.
What do you think?
Have you invested in platinum and palladium?
Do you expect supply issues to continue to support PGMs?
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