(Kitco News) - The gold market may be stuck in a holding pattern as prices consolidate below $3,400 an ounce; however, there is still plenty of bullish momentum in the precious metals space—if you know where to look.
With gold prices up nearly 30% so far this year, investors are beginning to look further down the value chain. Silver has garnered significant attention as prices trade near 13-year highs above $36 an ounce. Meanwhile, a growing number of analysts are recommending that investors take a closer look at platinum, another precious metal benefiting from a substantial fundamental supply imbalance.
Platinum futures reached a major milestone on Wednesday, as prices broke above $1,300 an ounce for the first time in nearly five years. The metal has rallied significantly over the past three weeks, having broken initial resistance at $1,000 an ounce. July platinum futures last traded at $1,326.50 an ounce, up nearly 45% year-to-date.
Nicky Shiels, Head of Research & Metals Strategy at MKS PAMP, said in a recent note that platinum’s rally is another component of the ongoing global currency debasement trade.
“A generalist search for US$ hedges outside of gold is getting started; silver and platinum are simply the next iteration of that,” she said.
At the same time, analysts have noted that platinum is attracting renewed attention as it continues to face a significant supply deficit. Last month, the World Platinum Investment Council forecast a supply shortfall of 966,000 ounces this year, up from the previous estimate of 848,000 ounces.
In a recent note, Daniel Ghali, Senior Commodity Strategist at TD Securities, said the squeeze in platinum due to persistent supply deficits is taking on a life of its own.
“As prices rise, inflows into physically backed ETFs reflexively fuel this process further by draining the free float. This should ultimately incentivize metal to flow back into the system from scrap and unconventional sources. Be warned: when price discovery is the mechanism by which markets find balance, the strike price to do so is typically higher than most anticipate,” he said.
Automotive demand remains the dominant driver in the platinum market, accounting for 80% of global consumption. However, some analysts have highlighted robust growth in the jewelry sector, as high gold prices begin to dent demand.
Commodity analysts at Bank of America noted that jewelry demand is the second-largest segment in the platinum market.
“After years of declining demand, there is anecdotal evidence that interest in platinum jewelry is now bouncing back in China. Rising gold prices are incentivizing jewelers to diversify, representing a shift from historical patterns. Given the differences in market size, a 1% switch from gold jewelry to platinum could add 700 koz of demand. This would nearly double our deficit to 1.6 Moz,” the analysts said in a note published earlier this month.
