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Platinum Looks Good on Longer Term, Uncertain on Shorter

May 30, 2011 at 19:55 by Vladimir Vyun

Platinum was underperforming compared to gold and silver until recently, rallying less than these precious metals in April. That turned out to be an unexpected advantage as weaker rally led to smaller drop, at least compared to silver. But now the metal looks trendless and it’ll be important to see at the driving forces of its moves to understand its potential performance.

For a start, let’s look at the difference of gold and platinum in relation to markets. Gold is a precious metal, its main value comes from investors, not physical demand, and therefore the yellow metal is driven by speculative demand and market sentiment. Platinum is viewed as generally industrial metal and is driven by industrial demand and other fundamentals. Thus, we can expect platinum-to-gold ratio to decrease over time as fundamentals, particularly outlook for the global recovery, can change drastically and currently not very positive for platinum. On the contrary, the demand for safer assets, including gold, remains in place. It can weaken and strengthen, but current economic environment doesn’t let us believe that speculative demand will go away anytime soon. That’s not necessary bad for platinum as it’s also often helped by the demand for safety, just not as much as gold.

Outlook for supply and demand varies among analysts. GFMS in its Platinum & Palladium Survey 2011, cited by Mineweb, predict that increase of supply will outpace growth of demand. ResourceInvestor said that platinum production growth in 2010 was 0.6 percent, while consumption surged 16 percent, and thought that disparity can even wide this year as production in South Africa may stall because of miners’ strikes and underinvestment.

Another important thing to consider is the usage of the metal in automobile industry. This factor currently is negative for platinum as the slowing US economy, problems in the European Union and, particularly, consequences of the natural disaster in Japan don’t make good for the car production and demand. Oil prices also affect this industry as higher prices decrease usage of cars. The recent spike of prices was negative for the platinum, yet falling oil isn’t necessary good for the metal as the oil drops often on poor macroeconomic fundamentals, which are also bad for platinum.

Platinum 2011 Chart

Now, after reviewing factors influencing platinum, can we predict future performance of the commodity? On the longer run, most economists agree, platinum looks attractive. The global recovery should help the demand from automobile industry, while turbulence of the world economy should support speculative demand. GFMS, even being skeptical for platinum demand in the near future, expect the metal to reach $1,900 by the end of this year. In the short-term, though, outlook remains clouded. Currently, the metal trades in a range between $1,745 and $1,800. If prices would manage to break any of these levels and stay outside the range for some time, we can expect significant move at the direction of a breakout. For now, it’s better to step aside from the metal and wait until the picture clears out and prices will establish a noticeable trend.

If you have any questions and comments on the Platinum today, use the form below to reply.

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