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Written by: John Kratochwil | AGF Investments
Platinum has recently captured market attention with a notable price breakout, definitively pushing above US$1,100 per ounce, after spending much of this decade rangebound between US$850-$1,100 per ounce.
A primary catalyst for this shift in platinum’s fortunes lies in the evolving landscape of the automotive industry. For years, the anticipated dominance of electric vehicles (EVs) cast a long shadow over platinum demand, given that approximately one-third to nearly half of its use is in catalytic converters for internal combustion engines. However, a significant pivot is underway. Auto original equipment manufacturers (OEMs) are now re-evaluating and scaling back ambitious EV targets, instead placing a renewed emphasis on hybrid engines.
This may be a considerable boon for platinum, not only because hybrids still incorporate catalytic converters, but critically, these vehicles demand more platinum per unit. The start-stop technology and extended battery-only operation in hybrids mean their catalytic converters often run at lower temperatures, requiring a higher concentration of platinum to maintain optimal efficiency.
Beyond the automotive sector, robust jewelry demand is providing substantial support to platinum’s price. Historically, a price increase might dampen jewelry sales, but in the current environment, particularly in key markets like China, demand remains strong.
A significant factor here is the compelling price disparity between platinum and gold. With platinum currently trading at approximately one-third the price of gold, a substantial gap exists, making platinum jewelry an attractive alternative. This stark difference suggests that jewelry demand is not only supportive of the current breakout but has the potential to further bolster the demand side of the equation.
Adding another layer to this positive narrative is the recent upward trend in the platinum-to-gold ratio. This ratio, which had seen a prolonged decline partly fueled by the “platinum is dead” narrative linked to EV expectations, is now signaling a change in investor sentiment.
The recent movement of platinum outpacing gold suggests that investors are increasingly looking for value beyond traditional safe havens and may be diversifying into platinum as a store of value.
In summary, platinum’s recent price surge is underpinned by several powerful forces. These include a turn to positive net long positions among traders, a fundamental shift in the auto industry towards hybrid vehicles, sustained strong jewelry demand driven by an attractive price differential with gold, and a notable re-evaluation of platinum’s investment appeal relative to gold. Collectively, these factors suggest a robust and potentially lasting upward trajectory for the metal.
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