29.09.2020 – Special Report. The low interest rates offered by the central banks argue in favour of an investment in precious metals. This applies to gold, but also to its white counterparts. Silver and palladium also benefit from a possible restart of the global economy – they have performed quite well recently. Only platinum is lagging behind. We shed light on the background.
Boost from low interest rates
According to CNN Business, precious metals bought for investment purposes benefited from the corona pandemic, the global recession it triggered and the fear that the US would not be able to quickly revive a new stimulus programme because of politics. Moreover, the Federal Reserve is unlikely to raise interest rates from zero in the coming years. Gold in particular therefore rose. The US bank Wells-Fargo also recently ruled that there were three main reasons for the yellow metal: low long-term interest rates, excessive global pressure on money and the weaker dollar. Analyst John LaForge, judged, “Trust in money, over the very long term, has been a fickle thing. No paper money has survived time, while gold has. Gold is history’s trusted store of value.”
In general, the tailwind for investment precious metals should continue – although gold and silver have recently been set back by a new dollar strength. The market wants more and more of cheap money, SchiffGold.com judged. On the other hand, the Federal Reserve could not raise interest rates because that would stall the economic recovery.
Only platinum in the loss zone
While gold has set new records this year and silver and palladium also boomed, platinum is lagging behind. The white metal has lost around 12 percent since 1st January. Gold and silver have gained around 23 percent despite the recent correction. And palladium is year-to-date around 13 percent in the profit zone. According to CNN Business this is due to the fact that platinum is used more in industry than the other metals. For example, platinum is an important additive in catalytic converters – but the car industry is knocked out because of corona. This is compounded by the rise of electrical brands like Tesla, which do not need catalysts.
Installation in automotive catalytic converters
But why did palladium, which is also used in cars, start to boom? The answer: Firstly, the market is very small and has been characterised by supply shortages for years. This is where US sanctions against Russia, the biggest supporter of palladium, take effect. On the other hand, three-quarters of platinum comes from Africa. Due to stricter environmental regulations, car manufacturers had to install more palladium in catalytic converters to reduce harmful emissions, which pushed up the price.
But: there was a shortage for platinum. In the case of catalytic converters for diesel vehicles, the proportion of platinum in processing has been much higher. It seems that palladium was used more in petrol cars and platinum more in diesel cars. The diesel scandal triggered by Volkswagen is therefore likely to have put a brake on the price of platinum. But when the economy in poorer countries like India or China is revived after Corona, diesel cars are likely to be the main source of demand – this technology is simple, mature and cheap. Moreover, manufacturers could switch back to platinum for petrol cars.
Usage in the oil industry
By the way, both platinum and palladium are used in hydrocracking, which is the splitting of heavy oil to produce petrol, paraffin or diesel. This would also give us a pull factor for both metals should the economy pick up again. And we also realise that platinum is now much cheaper and should therefore be bought primarily by the oil industry. Platinum last cost $ 847 an ounce, palladium $ 2,216.
Die Investitions-Alternative
It is therefore possible that platinum in particular will catch up because of its latecomer status. “The Fed has pumped more money into the markets. There is potential for more inflation as Powell talks about uncertainty and more stimulus,” says Ed Moy, chief strategist at gold seller Valaurum and former head of the US Mint. “So there will be point where investors flock more to alternative assets like platinum.” Platinum has far more potential to catch up than gold. In his opinion, the white metal is undervalued and should trade much closer to parity. So that would be a nice way up to the gold price of around $1,850.
Platinum in history usually more expensive than gold
And Will Rhind, head of GraniteShares, pointed out that platinum has historically traded at a higher price than gold. Only in 2015 did this turn around. At the latest after the US presidential election, the kick for platinum could begin: No matter who wins, he must take care of the economy. We can therefore expect new stimuli for 2021. And possibly new infrastructure programmes. Both should boost the car market. “It doesn’t matter who wins in November. There could be a huge amount of stimulus – trillions of dollars spent,” says Steven Dunn, head of investment funds at Aberdeen Standard Investments, who manages the Aberdeen Standard Physical Platinum Shares ETF. “More manufacturers could switch to platinum,” Dunn said.
“Platinum should make up some ground. There was a shortage before Covid-19. The pandemic has only made it worse,” was also the opinion of Everett Millman, precious metals specialist at Gainesville Coins. The price is still around 50 percent below the average of the past decade, and industrial demand should bottom out.
Our conclusion: The monetary policy push factors mentioned above apply to gold (investment, jewellery, dental technology) and to the other precious metals. Silver (jewellery, investment, mirrors, electronics, solar industry), palladium and platinum (both jewellery and investment, oil and car industry, medical and dental technology) are also used in industry. But only one metal from the group has not yet completed the bull run: platinum. You should think about that. The Bernstein Bank is keeping an eye on the matter for you and wishes you successful trades and investments.
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