(Kitco News) - Inflation fears are driving expectations that the Federal Reserve will have to raise interest rates as early as next week, and they have taken their toll on the precious metals market, including platinum.
However, despite the difficult macroeconomic environment, the World Platinum Investment Council (WPIC) said the platinum market’s underlying fundamentals remain relatively tight, with investment demand expected to improve through the second half of the year.
In its latest Platinum Quarterly report, the WPIC said the precious metal is now expected to see a modest surplus of 265,000 ounces in 2026, a significant shift from its previous forecast for a 297,000-ounce deficit.
In an interview with Kitco News, Edward Sterck, director of research at the WPIC, said that despite the volatility, the headline surplus masks an important shift in market conditions.
He explained that the platinum market saw a surplus of 548,000 ounces during the first half of the year, driven overwhelmingly by investment liquidation. Nearly 600,000 ounces flowed out of ETFs and exchange inventories during the period.
Despite expectations for an annual surplus, the WPIC expects the market to swing to a deficit of 283,000 ounces in the second half.
“We're back in deficit market conditions already,” Sterck said in an interview with Kitco News. “We have seen the selling stop, and we have seen some buying return.”
Sterck said the weakness in platinum investment demand during the first half was not specific to the metal. Rising oil prices following the conflict in the Middle East drove inflation expectations higher and dramatically shifted expectations for U.S. monetary policy.
“Ultimately, it was the conflict in the Middle East, increasing oil prices, higher inflation expectations, and therefore projections for two Fed rate hikes instead of two Fed rate cuts,” he said. “And that hit the whole of the precious metal complex. That wasn't just a platinum-only story.”
The WPIC noted that platinum prices fell 24% during the first half of the year and were down as much as 46% from January's 2026 high of $2,875 an ounce. At the same time, ETF holdings declined by more than 500,000 ounces, equivalent to roughly one-seventh of holdings at the end of 2025.
Although Federal Reserve Chair Kevin Warsh's hawkish rhetoric continues to create volatility, Sterck said platinum has shown significant resilience. Precious metals have repeatedly sold off when expectations for a September rate hike have increased, only to attract renewed buying between those episodes.
“Between these events, the metals have turned bid again, and actually, on average, they've been trending higher, even though they've been resetting a little bit each time we've had these bearish comments,” he said.
Sterck said that resilience suggests investors remain concerned about currency debasement, rising government debt and persistent fiscal deficits.
While gold remains the primary monetary metal in the debasement trade, platinum could provide investors with a higher-beta alternative. WPIC research shows the relationship between gold and platinum has changed dramatically since the end of 2024.
Sterck said the correlation between platinum and gold was slightly negative between 2014 and the end of 2024, at -0.15. Since then, the correlation has risen to a strongly positive 0.95. At the same time, platinum's beta to gold is around 1.3.
“In theory, if gold is moving higher, platinum should outperform by about 30%,” he said, adding that the leverage works both ways if gold prices fall.
The WPIC said platinum's higher-beta characteristics are supported by a fundamentally tight physical market following three consecutive years of significant deficits. Although above-ground inventories are expected to rise this year, they are forecast to end 2026 at just 2.01 million ounces, representing only about 3.4 months of global demand.
At the same time, Sterck said there are few prospects for meaningful growth in mine supply. WPIC expects mine production to remain essentially flat this year at 5.55 million ounces. Although higher prices could encourage modest production growth longer term, Sterck said there are no “transformational” supply projects expected during the next five to eight years.
Meanwhile, industrial demand is emerging as an increasingly important pillar of support, particularly as the artificial intelligence buildout creates new sources of platinum consumption.
WPIC expects industrial platinum demand to rise 5% this year to 2.385 million ounces, with glass demand increasing 23% and electrical demand rising 19%. The council said AI infrastructure requires platinum across advanced semiconductor manufacturing, printed circuit boards, hard drives and optical interconnects.
Sterck said the scale of platinum's exposure to artificial intelligence has surprised even the WPIC.
“We hadn't appreciated actually how many uses platinum, and also the other platinum group metals, have in AI,” he said.
The report noted that platinum glass demand jumped 41% year-over-year in the second quarter as investment in AI servers, data centers and advanced electronics accelerated. Electrical demand increased 22%, driven by AI data centers, advanced semiconductor investment and strong demand for high-capacity hard drives.
Sterck said the combination of improving investment demand, constrained mine supply and growing industrial consumption could quickly tighten the market again.
The investment outflows during the first half helped reduce extreme physical-market tightness, pushing lease rates lower and moving the London market from backwardation into slight contango. However, Sterck said the market appears to have returned only to a relatively neutral position.
“If any kind of change in terms of, let's say, more positive investment demand [occurs], it would probably bring back that market tension very quickly,” he said.
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