Platinum is trading below gold bullion prices again, but the current pressure on the white metal this time around could be coming from a surge in supply.
Platinum has been largely underperforming gold. For instance, the ETFS Physical Platinum Shares (NYSEArca: PPLT) fell 6.4% year-to-date and declined 23.9% over the past year. Meanwhile, the SPDR Gold Shares (NYSEArca: GLD) dropped 1.9% year-to-date and decreased 13.7% over the past year.
Consequently, the platinum spot price was hovering around $1,118 per ounce Wednesday while the gold spot price was at $1,154 per ounce.
The weakness in platinum prices was previously attributed to the flailing global economy as the white metal has a large 50% industrial demand, notably as a automotive catalytic converter component, compared to about 10% of gold demand that comes from industries.
However, platinum has continued to underpeform gold as supply output rises. Specifically, in South Africa, the source of three-quarters of mined platinum, output is expected to jump 31% this year after a prolonged strike in 2014 cut global supplies, reports Clara Denina for Reuters.
The World Platinum Investment Council estimates that the platinum deficit will shrink to 235,000 ounces, compared to last year’s 700,000 deficit, reports Allan Seccombre for BDlive.
Overall platinum output is calculated to rise 10% to 7,965 million ounces for 2015. In contrast, demand is only expected to rise 3% after a drop in investment and weak growth.
Nevertheless, platinum long-term outlook appears more promising as many expect the supply deficit to swell in the coming years. For instance, Impala Platinum, one of the six founding companies behind the Council, believes the platinum market can see a deficit of 1.8 million ounces in 2023.
“The picture we’re painting is of a market gradually burning up the above-ground stock levels, which we estimated at the end of 2012 to be 4.1-million ounces and this year it will be down to 2.53-million ounces,” Paul Wilson, CEO of the Council, said.
ETFS Physical Platinum Shares
For more information on the platinum market, visit our platinum category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of GLD.