Platinum is undervalued but its price has growth potential

A few years ago, platinum was the most valuable precious metal, above gold. However, in recent years its price has dropped below gold and palladium. At the beginning of the year, we have seen a glimpse of recovery. Paul Wilson, CEO of the World Platinum Investment Council (WPIC), the organization which is one of the most significant producers of the metal, has talked about the future possibilities of platinum.

The price of platinum began to rebound at the beginning of the year. It recovered $ 1,000 an ounce, but the Covid-19 breakthrough in the world economy stopped this rise.

Paul Wilson believes that the potential for medium-term demand for platinum was more clearly seen during 2019. Last year, investors, mostly institutional, purchased platinum ETFs equivalent to 991,000 ounces (30.8 MT) of physical metal. It caused tension in the physical market, and long positions in futures grew, which raised the price.

With the outbreak of the Covid-19 pandemic, there were significant drops in the price of most stocks and metals. Positions in the platinum futures market also plummeted at that time. But now, the metal has managed to recover. The physical demand of the metal continues to be tense. Investment in platinum coins and bars, for example, have experienced supply problems. Restrictive measures imposed to curb the spread of the Covid-19 caused the reduction of the supply of platinum from mines and recycling.

According to Wilson, Economic indicators suggest that after the pandemic, we will experience an even worse crisis than that of 2008. 

What role can the metal play in the coming months for investors?

Wilson thinks that The drop in the price of platinum during March was a critical buying opportunity. It has caused the purchases of bullion and coins by private investors to skyrocket. The total amount of the metal rose to 312,000 ounces (9.7 Mt) in the first quarter of 2020, which has been the highest figure in the last five years.

Regarding the concern about the increase in global risk and the negative impact on the taxation of the Covid-19 pandemic, Wilson believes that it will lead to the demand for precious metals, and platinum is among them. 

In 2019 we saw how the sizable American investment funds used platinum as a substitute for gold to protect themselves against bad times. It can repeat throughout 2020, Wilson said. 

In the latest Platinum Quarterly report, WPIC estimated investment demand at 605,000 ounces (18.8 Mt), compared to 1.18 million (36.7 Mt) in 2019. Willson said that Platinum-backed ETFs would end the year at zero, as growth in the balance sheet during 2020 will serve to offset the drop in the first quarter. But the fact that the high-risk environment remains, it could contribute to significant growth in demand.