Platinum: Undervalued or in Broader Decline

Among the big three precious metals - gold, silver, and platinum – the latter has experienced the biggest price declines in recent times. On a year-to-date basis, while gold has seen a 5% increase and silver has dropped by 4%, platinum has declined by a rather sizable 14%. What is the deal with platinum? Is it now undervalued and a good metal to invest in, or will the recent decline continue? In this article, we will delve into the current state of the platinum market and explore whether it represents an opportunity for commodity traders and investors.

Platinum’s Recent Market Performance

Compared to gold and silver, platinum features much lower trading volumes, largely due to its rarity. This lower liquidity makes platinum more volatile, presenting both increased risk and more return opportunities for commodity traders who are willing to embrace higher-risk trading and investment strategies.

As of today, platinum is trading slightly above $900, specifically at $920. Over the last two months, platinum has been on a steady decline. It now trades at some of the lowest prices in recent times. The last time the metal’s price dipped well under $900 was back in October last year. Nonetheless, in the last week, the downtrend has temporarily halted, and prices have shown a modest uptick. Although it is still too early to determine if this recent uptick signifies the beginning of a confident uptrend, it has sparked speculation among analysts about platinum's undervaluation and the possibility of a reversal in its fortunes.

Is Platinum Undervalued?

In our view, platinum shows clear signs of being significantly undervalued. As an industrial metal, platinum finds extensive use in manufacturing, particularly in the automotive industry. Consequently, its price is strongly driven by the supply versus demand equation. In the first half of this year, the metal's price plummeted due to a weak global economic outlook, which was expected to have a negative impact on the manufacturing sectors relying on platinum. However, there are clear fundamental signs that the supply versus demand levels of platinum will favor higher prices over the medium-term future.

The market may have underestimated platinum's value for several reasons. Firstly, the expectations of a worldwide economic contraction have not materialsed. The recent banking collapses in the US haven’t led to broader systemic downturns, leading to increased global economic confidence. This uptick in confidence should contribute to a more confident global manufacturing sector, resulting in higher industrial demand for platinum.

Secondly, supply levels out of South Africa, the key platinum producer, have been contracting since the beginning of 2023. This contraction points to further decreases in supply, potentially putting upward pressure on prices.

Thirdly, many investors are now recognising that platinum might have been an undervalued asset for a while. As a result, more speculative investment is expected to flow towards the white metal.

Lastly, there is increasing evidence that platinum is being actively used in gasoline after-treatment systems as a more readily available substitute for palladium, another key industrial metal. This substitution is expected to have a positive effect on platinum demand, further bolstering its prospects.

In conclusion, platinum appears to be undervalued and may currently represent the best investment option among the precious metals. Its recent decline, coupled with favourable supply versus demand dynamics, suggests that a turnaround may be on the horizon. However, it is important to note that investing in platinum comes with risks. The volatility inherent in platinum's market should not be overlooked. Despite being labelled a precious metal, platinum is not merely a white version of gold – it features much higher volatility levels and is only suitable for commodity investors with a healthy appetite for risk.