Gold vs platinum: Will new catalysts change the current trend?
16:37, 8 June 2022
Gold and platinum are both considered popular precious metal investments and safe haven choices, especially in times of geopolitical conflict, such as the ongoing Russia-Ukraine war. Investors also tend to lean towards these precious metals in times of economic volatility, such as inflation hitting multi-decade highs in a number of key regions.
Gold has traditionally been the investment of choice between these two metals, often simply because of ease of investment and availability. For the longest time, the majority of investors were also unaware of any other investment options when it came to precious metals. This was especially true in more traditional South Asian cultures, with gold playing a cultural and religious role as well as financial.
However, portfolio and wealth managers are becoming savvier now, providing a range of out-of-the-box options to clients. Metal and financial exchanges are also stepping up, becoming more sophisticated with a wider range of trading options when it comes to precious metals. This has gone a long way in bringing metals such as platinum and palladium to the forefront.
As such, one has to wonder, when does either metal outperform?
The gold-to-platinum ratio has been on an upward trend since early 2021
During the Russia-Ukraine war, platinum shone brighter
Russia is the second largest platinum producer, leading to considerable supply chain lags for the precious metal when the Ukraine conflict broke out, causing platinum prices to skyrocket. Between mid-December 2021 and early March 2022, platinum soared 28% to touch a peak of about $1177 per troy ounce on the 9th March. At the time of writing, however, platinum was trading at around $1012 per troy ounce, having dropped about 15% since its March highs.
Although gold and other precious metals such as silver also saw some gains during this time, platinum and palladium far outstripped them due to Russia being such a key player for both. Demand for platinum has also recently been buoyed by the fact that it is significantly cheaper than gold, despite being much rarer.
The Russia-Ukraine conflict has also shifted the onus of platinum production to South Africa, the top producer, more than before. This has led to more supply chain issues as a number of South African platinum miners are facing labour union issues currently. This has significantly boosted platinum prices as well.
Platinum has been seeing considerable attention lately due to its role as an auto catalyst in traditional vehicles as well as its potential uses in batteries for electric vehicles. With China reopening its economy after weeks of lockdowns and promising stimulus for the auto manufacturing industry, demand for catalysts is boosting platinum as well.
Not only that, but it is also a crucial material in some forms of solar cells, specifically dye-sensitized solar cells. With the green transition rapidly advancing for the past few years, as more businesses switch to renewable and environmentally friendly options, key green precious metals such as platinum and palladium will automatically see a rise in demand as well.
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In times of inflation and stagflation, investors stayed golden
Gold has always been seen as an inflation hedge, especially in volatile times like these, when inflation has already touched a 40-year high in the US and multi-decade highs in the UK and Eurozone as well.
Gold is especially popular during periods of stagflation (a scenario characterised by slow growth and high inflation) because it attracts demand from investors fleeing risk assets, such as shares, owing to sluggish economic growth and bonds due to low real yields resulting from high inflation.
The World Bank recently highlighted that global economic growth is expected to decline to 2.9% this year, from 5.7% in 2021, and raised the warning around stagflation in the coming year. This has compounded with ongoing supply chain issues, as well as geopolitical volatility stemming from conflicts in Russia, Ukraine, Afghanistan and Central Africa amongst others.
At the time of writing gold was trading at approximately $1856 per troy ounce, about 4% up from its mid-May lows, but still around 11% down from its early-March highs of about $2070 per troy ounce. However, the outlook is more positive for the rest of the year, with analysts at Metal Focus expecting the precious metal to touch an average of about $1830 per troy ounce for 2022, a new record average high.
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