Platinum Outperforms Gold Price on Covid-19's GFC Replay

Platinum price up 58% from March low, gold +32%... 

 

The SURGE in global demand for precious metals highlights platinum's potential to outperform, writes Trevor Raymond, director of research at the mining-industry's World Platinum Investment Council.

 

Increased global risk due to the Covid-19 Pandemic has driven strong investor demand for gold as a risk hedge with gold ETF holdings up 20% or $49 billion in 2020.

 

Gold is traded by, invested in, and commented on by a significant number of diverse market participants. This means that macro events are typically fully priced-in quickly, and this now includes growing fears of a global recession and of intervention-driven inflation.

 

The price of gold is up 27% in 2020 rising to a new record high of $2067 on 6 August 2020, outperforming almost all other asset classes year to date.

 

Global platinum ETF holdings are up in ounce terms in 2020 by 6% (+202 koz) while assets under management is up by 3% ($89m) and the platinum price is 3% weaker.

 

However, what may have gone unnoticed is that since the platinum and gold price lows on 19 March 2020, of $599 and $1474 respectively, platinum has significantly outperformed gold, rising 58% versus gold's rise of 32%.

 

Importantly, for the first time in years sentiment towards platinum is turning positive.

 

 

Platinum's price outperformance of gold is no anomaly. Over the two years from the price lows of the Global Financial Crisis (GFC) in late 2008, platinum's weekly returns outperformed gold's by between 30% and 65%.

 

After the GFC, platinum's price performance was not solely due to growing investment demand;  exceptionally strong platinum jewellery demand and limited supply growth maintained positive investor sentiment despite very weak automotive demand.

 

In the two years from the price lows of the GFC investors added 860,000 ounces of platinum ETF holdings and 1 million ounces of net long NYMEX positions and jewellery demand grew by over 1 moz.

 

 

In 2020, platinum market fundamentals have improved appreciably, as noted in our July automotive and July market shortage Platinum Perspectives'. Strong Chinese platinum imports, strong bar and coin demand, growing recognition of platinum substitution for palladium in autocatalysts as well as supply losses, have turned investor sentiment positive. Platinum's longstanding strong correlation with gold has rebounded to 0.7 since the Covid-19 pandemic unfolded.

 

Consequently, many more gold investors may consider platinum as a proxy for gold on that correlation alone, with the added potential outperformance of platinum a further enticement.