Will Platinum Prices Soar 50% by the End of 2017?
Platinum prices have been in decline for six years now. And things continue to look bleak for platinum bulls; since late February, platinum prices have fallen 8.3%. Despite Wall Street’s anemic platinum price predictions, our platinum price forecast for 2017 remains bullish. In fact, the right catalysts could propel platinum prices by almost 50% to $1,400 per ounce by the end of 2017.
It hasn’t been fun to be a platinum bull over the last number of years. After rebounding from the financial crisis, platinum prices peaked in 2011 and have declined since then. Platinum became less attractive on the heels of so-called encouraging U.S. economic data and calls for the Federal Reserve to start raising rates; another positive sign for the U.S. economy.
Chart courtesy of StockCharts.com
The platinum price downtrend looked as though it might have come to an end in January 2016. Stocks tanked at the start of 2016 as many feared the global economy was heading for a recession, and there were concerns that the Fed may have prematurely raised its key lending rate in December 2015. Between January and August, platinum prices soared almost 35%, hitting an intra-day high of $1,119 per ounce on August 10.
It was all downhill after that. Platinum prices slid in the second half of 2016 on the back of a strong U.S. dollar and hawkish tone from the Federal Reserve. Platinum and gold are sensitive to rising U.S. interest rates. Rising rates not only suggest the U.S. economy is improving, which boosts the U.S. dollar, but higher rates also diminish the demand for non-yield-bearing dollar-denominated assets like platinum.
Gold prices took another hit in November 2016 after Donald Trump won the U.S. election. Investor optimism soared on the belief that Trump’s pro-business growth policies would not just boost corporate profits but would also put more money into the pockets of everyday Americans.
After a strong start to 2016, platinum prices ended the year advancing just 1.5%, and closed the year out at $905.70 per ounce. By comparison, gold prices closed the year up more than nine percent at $1,152.70 per ounce and silver prices increased approximately 16% to $15.98 per ounce.
Platinum Bull Market Begins in 2017
Platinum’s anemic ride over the last number of years could be coming to an end in 2017, making way for a long-term bull market. Investor optimism remained high in the lead-up to Donald Trump taking over the Oval Office on January 20, 2017, but there were concerns that he may not be able to achieve his campaign trail pledges of slashing taxes, cutting red tape, and increasing spending. In 2016, U.S. annual gross domestic product (GDP) was just 1.6% and Trump said his economic plans would juice U.S. annual GDP to four percent.
Despite the widespread optimism and soaring stock market, an interesting thing happened; platinum, gold, and silver prices all rebounded. Investors were pinning their hopes on Trump’s economic action plan but were also investing in precious metals…just in case.
Platinum prices climbed steadily higher in the first eight weeks of 2017, advancing approximately 16% from $906.00 per ounce at the start of January to $1047 per ounce on February 27.
Platinum prices started to slide come March, but the factors dragging platinum lower are all based on short-term issues. The biggest reason behind the decline was the Fed’s March 15 rate hike. Again, this boosted the U.S. dollar and decreased the demand for non-yield-bearing precious metals.
But platinum prices have been climbing since early April, up 2.1% to $960.20 since April 10. While platinum prices will be susceptible to short-term fluctuations, platinum prices are setting up for a strong 50% rally in 2017; regaining its title as “rich man’s gold.”
It’s been a long time since platinum actually traded at a premium to gold. The last time platinum prices were above gold prices for any meaningful period of time was in 2011, when platinum was changing hands at $1,800 per ounce to gold’s $1,334 per ounce.
Chart courtesy of StockCharts.com
Over the last four decades, the highest premium platinum has had over gold was more than $1,200 per ounce in the summer of 2008. The average premium of platinum prices over gold over the last 40 years has been between $100.00 and $200.00 per ounce.
Today though, platinum is trading at a $317.00 discount to gold. Between 1996 and 2008, platinum never traded below gold. This is the lowest level that platinum prices have traded to gold in more than two years and represents the longest discount of platinum to gold since 1900.
But these bargain basement discount platinum prices are expected to reverse in 2017, returning platinum to its rich man’s gold status. This represents a great opportunity for both long-term platinum bugs and those looking to take advantage of growth opportunities.
Recall if you will, Wall Street didn’t hold out any hope for platinum prices at the beginning of 2017, yet platinum surprised to the upside, advancing 16% in the first two months of the year.
It would be unfortunate for investors to pass up on a short-term double-digit gain simply because they didn’t like platinum. Platinum and gold don’t need to be long-term investments. They can be viewed as short-term growth opportunities. And there are a number of catalysts that will propel platinum prices higher in 2017.
Demand for Platinum Still Strong
There are, apparently, good reasons why investors are taking a dim view on the future of platinum prices in 2017. The biggest one is that demand for platinum is falling. Like silver, platinum has a myriad uses: Automotive accounts for 37% to 42% of demand, Industrial for 18%-24%, Jewellery for 31%-38%, and Investment for 2%-11%. (Source: “About,” World Platinum Investment Council, April 25, 2017.)
For one, the jewellery demand for platinum for countries like China is weakening. More importantly, the Volkswagen diesel engine scandal hasn’t done anything to boost platinum’s appeal either.
As much as 42% of all platinum is used in catalytic converters. Most of that goes into diesel engines. Removing 42% of demand for platinum would decimate platinum prices. But that’s not going to happen. Despite the bad press about diesel engines, Volkswagen isn’t going anywhere and diesel cars are not going to disappear either.
In Europe, where diesel cars are much more popular, car sales are soaring. In 2016, British car buyers registered a record 1.3 million new diesel cars; a trend that’s continuing in 2017. In March, almost 250,000 diesel cars were purchased, a new, all-time, monthly high. (Source: “10 Facts you need to know about diesel,” Society of Motor Manufacturers and Traders, April 10, 2017.)
It’s not really discussed in the press, but diesel is not dead and the demand for platinum in diesel engines isn’t going anywhere either, except up, maybe. This bodes well for the platinum price forecast for the next three months.
But there are more pressing reasons to be bullish on platinum prices in 2017. Namely, using platinum as a hedge against economic and geopolitical uncertainty.
Like gold, platinum is a safe-haven asset that maintains its store of value when the economy and global politics go haywire. Platinum prices rebounded in early 2016, when the U.S. markets tanked. Platinum prices soared 19% in the weeks following the Brexit vote on June 23.
Platinum prices will get additional support in 2017 as the U.S. and the world face increased uncertainty.
Nasdaq Hits 6,000 for the First Time
The tech-heavy Nasdaq broke through the 6,000 mark for the first time ever on Tuesday, April 25. It was more than 17 years ago, in March 2000, when the Nasdaq first topped 5,000.
March 2000 is a dubious time in the history of the Nasdaq, it’s when the Nasdaq peaked and the dotcom bubble finally started to leak air. Analysts thought it was just profit taking, then a correction, then a crash. It was long and painful; by October, 2002, the Nasdaq had lost 78% of its value.
Chart courtesy of StockCharts.com
Tech stocks experienced another setback during the Great Recession in 2008, when the Nasdaq plunged 50%. The Nasdaq didn’t breach the 5,000 level until 2015. While correlation is not causation, the euphoria around the Trump presidency is partly to blame for the strong surge in tech stocks in 2017, which may not be sustainable and shows similarities to the tech bubble of 2000.
It’s been a big year for U.S. equities; not only has the Nasdaq reached record levels, but the Dow Jones Industrial Average has topped both the 20,000 and 21,000 levels, and the S&P 500 is at record highs.
Chart courtesy of StockCharts.com
But are current record levels sustainable? If not, platinum will be an excellent hedge against any correction or stock market crash.
Stocks have been on a tear since the November election, with the S&P 500 climbing 15%, the Dow up more than 17%, and the Nasdaq up almost 20%. Again, investors believe that Trump’s economic policies will help jolt the U.S. economy into gear after an anemic eight-year reign by President Obama. If that doesn’t happen, investors can, at the very least, expect stocks to give up ground made since the U.S. election. But fear could send stocks plunging to multi-year lows.
Investors are also afraid to lose out on any gains and are pouring into the markets. Instead of paying attention to fundamentals, investors are chasing momentum and technicals. This can only go on for so long. Eventually, valuations will have to come into focus. It’s one of the reasons why the tech bubble burst in 2000. Investors were afraid to miss out on the next big thing and sent tech stock valuations into the stratosphere.
The current bull market is eight years old and the second oldest on record. The only time stocks have been more overvalued was in the lead-up to the dotcom crash. Add it up and 2017 could be the year the broader markets correct.
Platinum Prices Rally on Geopolitical Tensions
A stock market correction or stock market crash will most certainly send platinum prices soaring. So too will geopolitical tensions and black swan events.
Here at home, there are concerns about whether President Trump can get his campaign promises passed. Failing to do so will undermine his economic policies and will cut into corporate profits.
Even if he does get them passed, there are concerns that Trump’s “massive” tax cuts and spending will blow a massive hole in the budget. Recall if you will, Trump inherited a national debt near $19.8 trillion and national deficit nearing $600.0 billion.
With 2016 GDP at 1.6%, it’s highly unlikely Trump’s tax cuts will get the economy going strong and quickly enough to cover the hole in the deficit. Treasury Board Secretary Steve Mnuchin said the tax reforms will pay for themselves with economic growth, but others contend that no tax cut can pay for itself.
Failing to propel the U.S. economy forward could derail the bull market and send investors to safe-haven investments like platinum, gold, and silver.
In March, U.K. Prime Minister Theresa May triggered Article 50, a clause that begins the two-year process of leaving the European Union.
While it’s unlikely that right-leaning Marine Le Pen is going to win the French election, the currency election cycle shows there is growing disdain for France staying in the EU and not taking the same path as the U.K. in leaving the European Union.
Then there are growing tensions in the Middle East and Asia. In early April, Trump unleashed 59 “Tomahawk” cruise missiles on the Shayrat air base in the central part of Syria. While the attack was in retaliation to a deadly Sarin gas attack that killed 87 people, it was also seen as a warning to North Korea and Iran that Trump isn’t going to back down from military threats.
Trump made this point again a week later when he dropped the largest non-nuclear bomb ever used in combat in Afghanistan, killing 92 and destroying a complex of tunnels and bunkers used by ISIS.
Militants responded by attacking an army base and killing dozens of local soldiers. The tension isn’t just rising, the war in Afghanistan is getting worse.
Russia’s Deputy Foreign Minister, Sergei Ryabkov, said the rhetoric used by the U.S. is “primitive and loutish.” To prove its point, Russia is trying to flex its steroid ridden muscles by flying bombers off the Alaska coast. (Source: “US rhetoric ‘primitive and loutish’, says Russian official ahead of Rex Tillerson talks,” The Independent, April 12, 2017.)
Global tensions are at critical levels and if they reach a boiling point, investors will protect their assets with platinum. Even if tensions stabilize and platinum prices slip, we all know that peace can be broken in an instant.
If the stock market experiences a correction or overvalued stocks crash, investors will move their money into precious metals like platinum.
There are a myriad reasons why platinum will become a safe-haven asset in 2017 and why platinum prices could soar by as much as 50% by the end of the year to around $1,400 per ounce.