Here Are Two Reasons to Watch Platinum Prices in 2016
Platinum prices shouldn’t be overlooked. Just like gold and silver, this metal, with both industrial and investment use, could soar. Platinum prices have become victim of negative sentiment while fundamentals are improving.
Don’t bother with anything else; just look at the demand and supply in the platinum market. It’s completely distorted and suggests platinum prices could be much higher.
Is It Time to Dump Platinum? Definitely Not!
Each quarter, the World Platinum Investment Council reports on conditions in the platinum market through its published report called Platinum Quarterly (PQ).
In the second quarter of 2015, the demand for platinum was 2.04 million ounces. In the previous quarter, it was 2.02 million ounces. Also, platinum demand for the entire year of 2015 is expected to hit 8.35 million ounces, up four percent from the previous year. (Source: “Platinum Quarterly Q2 2015,” World Platinum Investment Council, September 8, 2015.)
What’s interesting to note here is that while the metal was previously regarded as just an industrial metal and for jewelry, the demand for platinum as an investment is increasing. In the second quarter of 2015, 60,000 ounces of platinum were consumed in bars and coins. In just the previous quarter, this figure was 35,000 ounces. This represents an increase of more than 71% quarter-over-quarter.
When you look at the supply side of the platinum market, this is where you really see the basic economic problem.
Consider this: in the first half of 2015, silver supply was just 3.78 million ounces, or 280,000 million ounces less than the demand. For the entire year of 2015, silver supply is expected to be 7.91 million ounces, which is nine percent higher than the previous year. This is 440,000 ounces less than the forecasted demand for platinum in 2015.
Here’s what must be understood when examining platinum’s supply side: since the beginning of 2015, platinum prices have come down roughly 30% and when prices of commodities come down, producers usually have less incentive to produce because their profit margins get thinned. In other words, the cost to produce becomes much higher than the spot price. This phenomena could just add more to the misery.
Just look at the chart below to get some perspective:
Chart courtesy of www.StockCharts.com
The Bottom Line on Platinum Prices
No matter how you look at it, it’s very difficult to have a bearish stance on platinum prices. Since the beginning of the year, investors have bought into the idea that the Federal Reserve will raise interest rates, the dollar will rise, and this will all be bad for commodities prices. Platinum prices are plunging because of this as well.
Dear reader, you must remember that the markets can remain irrational for some time, but eventually, they come to reality. This distorted demand-and-supply situation in the platinum market will eventually show up in platinum prices.
As it stands, there are very few platinum mining companies around. As platinum prices decline, they are selling for a severe discount. When the market turns, we could see platinum prices double or even triple in value.