Supply and demand are the two primary drivers of price action in the commodities complex. Currently, supply dynamics favor palladium and platinum.
That’s encouraging for investors considering the the Sprott Physical Platinum and Palladium Trust (NYSEArca: SPPP).
SPPP provides “a secure, convenient and exchange-traded investment alternative for investors who want to hold physical platinum and palladium. The Trust offers a number of compelling advantages over traditional exchange-traded platinum and palladium funds,” according to the issuer.
“Platinum, palladium and rhodium used by the auto industry to filter emissions from engine exhausts were all in short supply last year, data from specialist materials firm Johnson Matthey showed on Wednesday, as prices for the metals soared,” reports Reuters. “Supply shortfalls have driven rapid price gains, with platinum trading at six-year highs and rhodium and palladium close to record levels.”
Compelling Catalysts for SPPP
Last week, platinum-related exchange traded funds surged as the precious metal rose to a 6-year high on economic recovery hopes that bolstered bets of industrial autocatalyst demand, along with expectations for additional stimulus and a weaker dollar that support demand for hard assets.
On the demand side, analysts have pointed to last month’s 30% year-on-year surge in auto sales in China, the world’s biggest auto market. The rising demand for automobiles also supported demand for platinum in automobile catalytic converters that are designed to limit greenhouse gases from exhaust fumes.
“A shortfall is expected for palladium and rhodium this year as well, the third consecutive annual deficit for rhodium and the tenth for palladium, Johnson Matthey researcher Rupen Raithatha said,” per Reuters. “Platinum may see a third consecutive annual deficit in 2021, depending on how much metal is stockpiled by investors, he said.”
Platinum will continue to enjoy robust industrial demand. Platinum jewelry is starting to enjoy a jump in demand as well, especially among the millennial generation.
The white metal is primarily used in catalytic converters in diesel-powered automobiles, but environmental concerns previously tamped down demand for the precious metal. As such, the price of platinum has fallen over the years amid weaker demand and excess supply, whereas gold and silver have found safe-haven support on an increasingly dovish Federal Reserve monetary policy outlook and palladium benefited from cars that run on gasoline.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.