Platinum price jumped for three consecutive weeks, reaching a high of $1,348, its highest point since September 2014, and 138% above the lowest point in 2021. This article explores why the platinum price has surged and what to expect in the coming weeks.
Why platinum price has soared
The main reason why platinum has jumped is likely due to the modest demand and the ongoing supply deficit.
Recent data by the World Platinum Council (WPIC) shows that the platinum market had a deficit of about 995,000 ounces in 2014. The figure was about 46% higher than previous estimates.
The organization believes that the industry will go through another supply deficit this year. Precisely, it expects the deficit to be about 848,000 this year. This deficit will come from the demand of 7.86 million ounces and supply of 7.32 million ounces.
Platinum mines will produce about 6.9 million ounces, the lowest level in five years, because of challenges in South Africa and Russia.
At the same time, platinum demand is expected to continue rising, mostly from the automotive sector. Jewelry and industrial demand is expected to keep rising.
Platinum is widely used in the automotive sector, where it is used in the manufacture of catalytic converters. These converters facilitate the conversion of toxic gases like carbon monoxide and nitrogen oxide into less harmful substances.
Platinum price has also jumped because of the falling above-ground stocks, which are expected to drop by 25% this year to 2.5 million.
An alternative to gold
Platinum and silver have also surged because of the recent gold price bull run that pushed it nearly $3,000.
Gold jumped because of the rising demand from individuals, investors, and central banks as its safe-haven qualities intensified.
Therefore, some investors believe that platinum is a better and cheaper alternative to gold. That’s because, while platinum is an industrial metal, it also has some precious metal characteristics.
Still, there are risks to the bullish platinum thesis. For example, Goldman Sachs analysts are anticipating a sharp reversal that will bring its price to between $800 and $1,150 an ounce.
Another risk is that the palladium price has been unchanged recently and remains above $1,000. Manufacturers sometimes alternate between platinum and palladium depending on their costs.
Further, the ongoing crisis in the Middle East may impact the global economy, affecting demand for vehicles.
Platinum price technical analysis
The weekly chart also explains why the platinum price has gone parabolic, reaching its highest point since 2014. This rebound happened after the metal formed a symmetrical triangle pattern, a popular bullish catalyst. The rally happened as the two lines neared their confluence.
Platinum has remained above the 50-week and 100-week Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) and the MACD indicators pointed upwards, moving to the overbought level.
Therefore, the most likely scenario is where platinum pulls back in the coming weeks because of mean reversion. Mean reversion is a situation where an asset falls back to its historical moving averages. If this happens, the next point to watch will be at $1,100.
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