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Platinum Bounces Off 14-Year Lows

Kitco News

(Kitco News) - Bargain hunting is helping to support platinum prices Tuesday after the market dropped to its lowest level in 14 years.

Overnight platinum futures dropped to $800 an ounce, a price not seen since December 2008. However, prices have modestly recovered with October platinum futures last trading at $844.30 an ounce, up almost 4% on the day.

Platinum prices have dropped more than 18% since its highs at $1,033 an ounce, at the start of the year.

At it’s session lows, commodity analyst at Commerzbank noted that, “The price discount on platinum as compared with gold has widened to a record-high $440.”

According to some analysts, the market has been sensitive to intensifying global trade issues as the auto sector could see a significant hit from the U.S. government threatening to place a 20% tariff on imported cars from Europe.

“Market participants clearly see a risk for platinum of the trade dispute being extended to include cars,” said Commerzbank.

The auto sector represents significant industrial demand for platinum as the precious metal is a critical component in catalytic converters, particularly for diesel engines.

In a report, Monday, Jonathan Butler, precious metals strategist at Mitsubishi Corporation said that platinum demand from European automakers is particularly sensitive to escalating trade tensions with the U.S.

“Fewer exports to the U.S. may show up in reduced platinum demand since diesel vehicles make up a large share of European production, and many models that tend to be popular in the US such as large European luxury SUVs are sold in diesel variants,” he said. “A tariff-related slowdown in European SUV exports to the US may result in less platinum demand since a U.S.-made gasoline SUV may be bought in place of a European diesel.”

Within platinum group metals (PGMs), palladium has managed to hold up reasonably well as the market is trading just of three-month lows. September palladium futures last traded at $940 an ounce, up 0.60% on the day.

Palladium also has a significant industrial component as it is the critical metal in catalytic converters for gasoline engines, which are used in most vehicles in North America and China. While palladium is weathering the trade storm better than its sister metal, analysts have warned that a weak auto sector is not favorable for either metal.

Friday, in a letter to the U.S. Commerce Department, General Motors warned that proposed tariffs on vehicles could impact its domestic production.

“Increased import tariffs could lead to a smaller G.M., a reduced presence at home and abroad for this iconic American company, and risk less — not more — U.S. jobs,” the automaker wrote in its letter.

While palladium is currently trading at a premium to platinum because of trade issues, analysts at Capital Economics said that they see several factors that will eventually reverse the current trend.

In a report last week, Simona Gambarini, commodities economist at the U.K.-based research firm, said that they see platinum outperforming palladium within two years. However, long-term they see further weakness in PGMs as growing electrical vehicle market reduces demand for catalytic converters.

“With anti-diesel sentiment unlikely to dissipate anytime soon, we expect the price of platinum to continue to trade at a discount to palladium until 2020 when a combination of demand and supply factors should push it back to a slight premium,” she said in her report.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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