Precious Metals Weekly – More downside for platinum

by: Georgette Boele

150226-Precious-Metals-weekly - More downside for platinum.pdf ()
  • Platinum prices have resumed their decline since the start of the year…
  • …and weakness will likely continue in the months ahead
  • Gold price weakness has come to a halt… for now

Unfortunate platinum prices

Last year, platinum prices lost more than 10% despite the sharp reduction in mine production as a result of the strike at South African mining companies. This was a surprise to a large part of the market. However, we have been forecasting lower platinum prices for some time now, because we judged that investor selling would have a more negative impact. So the fall in platinum prices in 2014 was in line with our view.


How low will platinum prices go?

The start of 2015 has been no different, year-to-date platinum prices have lost around 2.6%. This is despite the stronger than expected eurozone economic data (important market for platinum) and expectations of a supply deficit. We think the correction will continue. The supply deficit could be smaller than now anticipated. In addition, it is likely that investors continue to sell platinum in the coming months because of the prospect of higher US rates and a higher US dollar. Therefore, we expect prices to weaken another 7% in the months ahead; our end-of-June target is USD 1,100 per ounce. This may sound a lot, but compared to the total sell-off of 37.5% since August 2011 (peak above USD 1,900 per ounce) we are nearing the end phase. However, it is not the time to position for a recovery yet, because improving fundamentals are not strong enough to convince investors to stop selling. We expect the recovery to start once financial markets have adjusted upwards their expectations for US interest rates for this year and next year. This will probably play out in the coming months.

Weakness in golds prices has come to a halt… for now

In the period 22 January until 24 February gold prices dropped by almost 8%. The main reasons were lower safe haven demand and the sharp rise in US yields (especially 10y US Treasury yields). Since then, prices have stabilized and edged higher. After Yellen’s testimony to the Senate and the House, yields have moved lower and this supported gold prices. In addition, a clear direction in the US dollar is missing at the moment. We expect this to be temporary. A higher US dollar, higher US rates/yields and lower risk aversion should push gold prices below the large area of supports below USD 1,200. Our end-of-March target is USD 1.150 per ounce.