Investing in commodities has proven to be a profitable trade in 2021 with many metals establishing new multi-year highs. Among the large group of notable performers is platinum, an important component for the industrial and medical sectors.
Platinum ended 2019 at around $925 an ounce. It fell just below the $600 level during the peak of the COVID-19 selloff in early 2020, yet a swift and sharp rebound not only resulted in platinum erasing all of its losses but saw it trade above the $1,000 level. The momentum continued into the first few weeks of 2021 as platinum added around $300 per ounce in value to trade at its highest levels in years. Since then, platinum has given back some of its gains to settle at around $1,200 at the start of June.
What’s next for the metal? Will platinum go up and recapture its 2021 highs or will investors cash in their gains and seek out opportunities elsewhere? Let’s take a look at the catalysts that have driven platinum to its high mark and at the platinum technical analysis to try and model a trade thesis.
Why platinum hit multi-year highs in 2021?
For the most part, platinum has benefited from the broader trend seen across many asset classes. Optimism for a return to some form of normalcy increased with the smooth rollout of COVID-19 vaccinations globally over the first few months of 2021.
What does this have to do with the platinum price forecast? It’s simple. A return to pre-pandemic life and work processes across the world should translate into increased demand for industrial metals, like platinum.
In addition, one-third of the entire supply of platinum is used by the global automotive sector to manufacture spark plugs and sensors. Demand for automobiles is now heating up as millions of people travelling to and from work now have a reason to replace their old cars. A more stable job and economic outlook also suggest consumers are willing to buy high-ticket items like cars.
Similarly, platinum has seen a boost in demand as the world continues to focus on cleaner alternatives to old-style polluting cars. Platinum plays an important role in the green hydrogen agenda, especially in fuel cell deployment and renewable electricity.
These encouraging platinum price news catalysts pushed platinum to trade above $1,300 an ounce in mid-February for the first time in six years.
World Platinum Investment Council: incremental demand from investors
The World Platinum Investment Council (WPIC) said in a mid-May report that total demand for platinum rose by 26% during the first quarter of 2021 compared to the same period last year while industrial demand rose 44%.
The report further stated that 2021 will likely be the third consecutive year where platinum suffers a supply deficit. Specifically, the total demand for platinum is modelled to be 8,041 koz while the total supply is forecasted at 7,883 koz.
Paul Wilson, CEO of WPIC, commented in the report:
Yet despite the report’s bullish stance, investors are left wondering if platinum is worth buying now. After all, momentum has stalled since peaking in February and the price of platinum has remained largely flat over the past three months.
Platinum price levels to watch
Investors looking to base their platinum buy or sell thesis on the platinum technical analysis should keep these key figures in mind.
Moving on to the platinum chart, we see a strong rebound off the March 2020 lows with platinum recording higher highs and lower lows throughout the rest of the year.
Zooming in to the 2021 year-to-date chart, there’s a different story with platinum testing the $1,350 levels only to quickly sell off to around $1,100. Since then, platinum has tested the $1,250 level on several occasions but each attempt has failed.
Evaluating the platinum price forecast based on some technical indicators is proving to be a difficult challenge. For example, the 20-day moving average flashed a clear buy signal in November 2020 and a strong sell signal when platinum hit its highs in February.
But in the current sideways market, we might as well remove the 20-day moving average indicator as it doesn't offer a directional trade. This is because the price of platinum keeps on bouncing slightly above and below the average.
The relative strength index (RSI), a measure of how overbought or oversold an asset is, very briefly touched oversold conditions at the beginning of June. This indicator should instil a bit more confidence in a bullish trade.
Is Platinum still a buy in 2021?
Moving on to the all-important question on everyone’s mind: is platinum still a buy in 2021? It could be given that the longer-term trend dating back to 2020 is unchanged. The trendline of around $1,075 is still below the current price of platinum so a medium-term target would be around $1,350.
If platinum breaks above its 2021 highs, then it wouldn’t be unreasonable for platinum to make a run at $1,500. The last time platinum traded at these levels was back in July 2014.
On the flip side of the trade, if platinum’s price falls and starts to test the trendline, the risk-to-reward profile will skew towards the downside. In this case, platinum could fall back to retest the January lows of around $1,050. Investors looking to buy platinum now may want to consider this to be a hard stop-loss level.
Platinum offers traders a combination of near-term and long-term catalysts on which to speculate. Over the near term, platinum price should benefit from a deficit as total demand exceeds supply. Long-term catalysts for growth include increased adoption of platinum in fast-growing sectors, especially green energy.
Gold prices gained in 2020 during the COVID-19 pandemic due to the metal’s status as a safe haven in times of uncertainty and fear. Now that the pandemic appears to be in its end-stage (we hope), industrial demand for platinum should rise while demand for gold may slow.
As such, investing in platinum in 2021 might be a good option to consider rather than gold – although there is no reason why investors can’t trade both.
Think of credit cards –a ‘platinum’ card screams prestige, while a ‘gold’ card is far more common. Yet in reality, the price of platinum is now lower than gold. This isn’t to say that one is more important than the other. In reality, both platinum and gold prices fluctuate according to supply and demand as well as other factors.
As already noted, gold often doubles as a store of value during uncertain times and has for centuries been seen as a common household investment. It isn’t uncommon for bars of gold to be passed down from one generation to another, which means many people could hold gold without understanding why. Platinum, on the other hand, typically attracts more sophisticated investors who understand the metal’s real-life use case.
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You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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