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Market Overshoots on Platinum Group Metals

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Market Overshoots on Platinum Group Metals

There's no doubt that platinum and palladium, the oft-forgotten sister metals of the Platinum Group, are almost always overshadowed by their precious metal cousins, gold and silver. There are several disadvantages that work against the Platinum Group Metals (PGMs), including how hard they are to work with (as in fabricating jewelry) and that their shared hue tends to resemble a duller version of silver.

platinum_bar2In short, platinum and palladium aren't ideal for ornamentation. This distinguishes them from the other two precious metals. The PGMs are also distinguished by their market: the majority of demand for platinum and palladium comes from industry. The two metals are necessary components of the pollutant-filtering mechanisms that scrub toxins from automobile emissions.

These two metals have been busy in the markets lately, experiencing rapid price movements over the last few weeks. Interestingly enough, these moves have mostly been in opposite directions—up for palladium and down for platinum.

Divergent Fates

Platinum has lost close to a quarter of its value (-23.7%) over the past 6 months. It hasn't closed above the $1,000/oz mark since mid-July, and is trading just barely over $900/oz at the moment. Platinum has also fallen below the gold price, a development that has only happened in two or three brief instances over the past 20 years. Moreover, this crossover isn't the function of surging gold prices—quite the opposite. The gold price has simply fallen by less, or more slowly, than spot platinum.

Source: Glogster.com Source: Glogster.com

Meantime, palladium has bounced back from a recent slump, rallying some $90 per ounce (+15.5%) over the month of September. The tear has lifted prices fro a one-month low of $580/oz all the way back up to $670/oz to begin October.

Along the same lines as keeping an eye on the gold-to-platinum ratio, the platinum-to-palladium ratio is also at somewhat anomalous levels. Right now, the platinum price is just 1.5 times higher than palladium's corresponding per-ounce spot value; over the last 30 years, the ratio has only been that low once, during an extended period from 1997-2002. Historically, the ratio averages closer to 4 or 5.

Diesel Plays a Role

Some of the rationale for why palladium is surging and platinum is dropping has been explained by the "Dieselgate" scandal surrounding Volkswagen.

VW logo

The fact that VW was caught cheating emissions standards in its "clean diesel" vehicles is (albeit indirectly) a black eye on the platinum industry, since far more platinum is used in catalytic converters for cars that run on diesel fuel. (Palladium is the more prominent material used in non-diesel catalytic converters.) Combine the negative publicity for VW—with its full line of diesel vehicles—and the environmental blowback over dirty emissions, and it's reasonable to think that the use of platinum in automobiles may be set to decline.

As Mineweb points out, this is probably getting ahead of ourselves. Sure, this scenario may play out in the short run, but as far as moving markets and truly changing circumstances, we are a far way off from such a scenario. The industrial demand for PGMs isn't going to seismically shift until we completely revamp how cars run (such as with electric vehicles). The relative importance of platinum and palladium for automakers may undergo an adjustment; just don't expect Platinum Group Metal prices to suddenly fall out of the sky because of "Dieselgate."

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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