Is platinum undervalued now?

The price of platinum has been fluctuating between $900 and $1,000 per troy ounce for some time, making the precious metal significantly cheaper than gold. This is remarkable, because historically the ratio has usually been reversed. Historical data shows that platinum was on average about 30% more expensive than gold, while not so long ago it was also very common for platinum to be paid twice as much. Is platinum undervalued right now?

The first question we have to ask is why the platinum price is now lower than the Gold price. Several factors play a role in this. Much of the precious metal is used for the production of jewelry (32%), but by far the most important application is the automotive industry. And we have seen several developments in recent years.

Less platinum for diesel cars

According to figures from the World Platinum Investment Council (WPIC), the automotive industry accounts for 44% of total demand. That's because a lot of platinum is used in catalytic converters, especially in diesel cars. And that is probably where the explanation for the price drop is to be found. The diesel scandal at Volkswagen and the policies of several countries to ban polluting diesel cars have not helped the popularity of this type of car. And that has also had a negative impact on demand for the grey precious metal.

However, if we look at the actual impact of diesel cars on the demand for platinum, it seems as if investors have punished the precious metal too harshly. According to analyst Georgette Boele, a transition to electric cars is very negative for the prices of platinum and palladium, but it remains to be seen whether this transition will actually happen as quickly as predicted in that scenario. It is also striking that the price of palladium rose sharply last year, while this raw material is widely used in cars with a petrol engine.

Platinum price continues to struggle

If we look at the development of the platinum price over a longer period of time, we see that from 1970 onwards it has always risen within a certain range. The following chart from Nick Laird of Goldchartsrus.com shows that the price is currently at the lower end of the range, something we last saw in the late 1990s. The platinum price at the time was $350 per troy ounce and would go up seven times in ten years.

Platinum price at the bottom of ascending trendline (Source: Goldchartsrus.com)

Of course, past performance is no guarantee for the future, but there are several indicators that suggest platinum is relatively cheap right now. For example, the precious metal is not only relatively cheap compared to gold (lowest level since 1982), but also compared to its smaller brother palladium (lowest level since the late 90s).

Platinum is currently relatively cheap against gold (Source: Goldchartsrus.com)

Investing in platinum?

The platinum price does not seem to have moved from its place in recent years, but that could change if more investors find the precious metal worth buying again or if the precious metal gets new industrial uses again.

Also, the price may increase due to supply disruptions, as the Most of mining production comes from South Africa (68%) and Russia (15.52%). Should these countries decide to export less platinum, this could also cause the price to rise.

Do you want to Buy platinum? Then take a look at our extensive range of coins and bars. By the way, you can also use this precious metal VAT-free purchases in combination with storage in Switzerland. We are happy to inform you about the possibilities. BFor more information during working days to 088-468 8400 or send an e-mail to klantenservice@hollandgold.nl.