Key Factors Behind Platinum’s Recent Price Retreat

On Monday, the price of platinum shed 2.15%, bringing the cumulative week-to-date loss to about 9%. Several factors explain this downward pressure on the precious metal, and we explore some of those key factors below.

The hawkish monetary outlook by the U.S. Fed has created a major macroeconomic headwind for not just platinum but all precious metals. Persistent inflation has prompted the Fed to consider keeping lending rates higher for longer in order to put a lid on sticking inflation. In the recent FOMC meeting, several members of the Fed signaled support for raising interest rates later this year.

Elevated rates boost real yields for investors, and this policy direction has exerted downward pressure on platinum prices since precious metals are non-yielding.

Geopolitical tensions have for long provided support to precious metal prices, especially earlier on this year when war broke out in the Middle East. However, peace talks are progressing well between the United States and Iran, and this has cooled a major tailwind that was fueling price gains for precious metals.

Investors are therefore unwinding their positions in safe haven assets as prospects of peace increase. This has resulted in platinum shedding some gains it had accumulated over the past months.

More pressure on platinum prices has been coming from falling industrial and jewelry demand. High oil prices and disruptions to shipping have led to lower industrial activity, especially in the automotive sector where platinum is used to make catalytic converters. This depressed industrial activity has dampened the projected supply shortage that previously supported prices.

In the jewelry segment, demand has also cooled due, in part, to the elevated prices that precious metals have been trading at. India, one of the largest buyers of gold for jewelry purposes, went as far as limiting gold imports in order to protect currency stability. Needless to say, demand for platinum was also affected since precious metals are priced in dollars and the Indian government wanted to limit hard currency outflows to protect the rupee.

All in all, platinum and other precious metals are facing multiple macroeconomic headwinds and their prices could come under sustained pressure for a while. However, the long term fundamentals for platinum point to a continued supply deficit due to production challenges in Russia and South Africa.

These supply-side factors are likely to put a floor on how far prices could slide, and any revival in the industrial demand for platinum could trigger a resurgence. As peace returns to the Middle East and oil prices drop even further, normalcy is likely to return to manufacturing, supporting platinum price gains. Platinum producers like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) will be assessing market conditions as they evolve over the coming weeks to gauge how prices are likely to respond.

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