Platinum is one of the precious metals that had a tremendous run during the pandemic. It diverged from gold in the last six months or so and remains bid at the highs. What triggered the move higher and, more importantly, can we see even higher prices?
Before anything, it is important to make a distinction between commodities and other alternative investments. For instance, Bitcoin is viewed as a digital alternative to gold, but at least gold has some industrial use. Hence, the hedging part of a portfolio is one thing, and the industrial use is another.
Besides gold, all other precious metals, like silver, platinum, or palladium, have a higher industrial use. Technological changes and breakthroughs are responsible for imbalances in the supply and demand of such metals.
The pandemic brought a disruption in the supply chains around the world, from the semiconductors industry to commodities. As such, the price of some commodities in high demand, such as platinum, rose dramatically.
Bullish Conditions Remain In Place for Platinum
As COVID-19 impacted supply, the price of platinum rose. Gold peaked in August 2020, but platinum continues its bullish run. Moreover, it keeps intact the series of higher highs and higher lows, suggesting more upside is possible.
Glassmaking and chemical production industries are responsible for a big chunk of platinum’s industrial demand. They both recovered to a pre-pandemic level, boosting the price of platinum in a world where shipping goods around the world costs more than before the crisis.
However the biggest use of platinum comes from the automotive industry. Platinum (and palladium as well), are used in the manufacturing process of catalytic converters. Why are these important? A catalytic converter helps to reduce the toxic emissions from the vehicle exhaust.
In the context of the world becoming more and more conscious about climate change, that is a source of increased demand for platinum. One may argue that this is not enough to justify the recent rise in the price of platinum. That is true.
However, the pandemic brought something else with it – a change in consumer behavior. Sales in the automotive industry remained stable, as people avoided crowded public transportation. As such, combined with the pressures for green products, the industry is likely to shift dramatically towards products that reduce toxic emissions. Hence, the demand for platinum is likely to increase in the medium to long-term future.
For technical traders, one thing is clear – as long as platinum’s price remains in the rising channel, new highs are possible.