In my Q1 2023 precious metals report on Barchart, I highlighted platinum’s 7.41% quarterly decline after an 11.13% rally in 2022. Nearby NYMEX platinum futures closed at the $994.10 per ounce level on March 31, 2023. I wrote, “Platinum has been in a bearish pattern of lower highs and lower lows since reaching a record peak in 2008.”
On December 28, 2022, I wrote:
Platinum could finally shine in 2023 as inflation, a developing supply-demand deficit, concerns over Russian supplies, and low liquidity may ignite a long-overdue rally that allows platinum to catch up with gold. Platinum has been in an ugly trend of lower highs and lower lows since 2008, but the odds could favor a significant recovery in 2023. The critical upside resistance level that would break the fifteen-year bear market is at the February 2021 $1,290.60 high.
On May 23, 2023, platinum was higher than the Q1 2023 closing price, but it has yet to run away on the upside.
A bullish trend in platinum since late February- A critical level in late May
July NYMEX platinum futures reached a $910 per ounce low on February 27, 2023.
The chart highlights the pattern of higher lows and higher highs since the late February low that took the July contract to a $1,148.90 high on April 21, 2023. With platinum around the $1,066 level on May 23, short-term technical support to keep the bullish pattern intact is at the May 4 $1,042.70 low.
From a long-term perspective, platinum futures remain in a bearish trend since the 2008 record $2,308.80 high. Since 2016, the price has primarily traded from $800 to $1,200 per ounce, with a brief downside spike in 2020 and a move over the $1,200 level in 2021.
Rising demand creates a deficit
The World Platinum Investment Council, a trade association representing South African producers, recently said it forecasts a 28% increase in global platinum demand in 2023 from the previous year with a 1% decline in supplies. The Council expects the 2023 platinum deficit to reach 983,000 ounces, a 77% upward reversion compared to its March forecast.
The Council also said:
Industrial demand, particularly in chemical and glass production in China, is looking to be the strongest on record, the report estimates. Strong demand also continues in the auto sector as platinum becomes an increasingly common replacement for pricy palladium in catalytic converters.
The price action in the platinum futures market reflects the bullish fundamentals, but the price is not running away on the upside yet.
Platinum is less liquid than gold or silver
If the platinum deficit materializes and investors turn to platinum as an investment asset, the low liquidity in the platinum futures market could cause extreme upside volatility. Platinum’s open interest compared to gold and silver futures is why a herd of buying or selling can cause extreme price moves.
- Platinum- Open interest of 73,539 contracts translates to 3,676,950 ounces. At $1,066 per ounce, the platinum futures market’s value is $3.92 billion.
- Gold- Open interest of 480,505 contracts translates to 48,505,000 ounces. At $1,970 per ounce, the gold futures market’s value is $95.6 billion.
- Silver- Open interest of 137,678 contracts translates to 693,370,000 ounces. At $23.60 per ounce, the platinum futures market’s value is $16.25 billion.
The low liquidity in the platinum futures market can lead to price implosions and explosions.
An upside technical break could lead to an explosive rally
Bids to purchase platinum can disappear during selloffs and offers to sell can evaporate when the price rallies. A significant wave of buying or selling can cause volatile price movements to extremes. The fundamentals point higher, but investment demand is a critical factor determining the path of least resistance of prices.
A deficit in platinum supplies and the ongoing war in Ukraine are bullish for platinum. Russia is the second-leading platinum producer, and the continuing war and sanctions may only exacerbate the deficit.
The critical upside level in the platinum futures market stands at $1,290.60 per ounce, the February 2021 high. A move above that price could trigger a swarm of trend-following buyers to descend on the illiquid platinum futures market and the global physical market, igniting the metal on the upside.
PPLT is the most liquid ETF product
The most direct route for a platinum investment is the physical market for bars and coins. Futures provide an alternative as they converge with physical prices on expiration because of the NYMEX delivery option.
Meanwhile, the most liquid platinum ETF is the Aberdeen Physical Platinum ETF product (PPLT). At $97.85 on May 23, PPLT had $1.031 billion in assets under management held in platinum bullion. PPLT trades an average of 102,330 shares daily and charges a 0.60% management fee.
July platinum futures rallied from $1,003.10 on March 31, 2023, to $1,066 on May 23, a 6.3% increase.
Over the same period, PPLT rose from $91.94 to $97.85 per share or 6.4%, as the ETF does an excellent job tracking platinum futures prices.
Platinum’s short-term bullish trend will remain intact if the price holds above the $1,050 level. The supply and demand fundamentals point to higher prices, which could trigger a long overdue explosive move in the rare precious metal.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
