What are some important facts about platinum
Myths & facts about silver, platinum and gold
Anomalies are increasing on the precious metal markets. At the beginning of the year, the price of silver suddenly jumped 20 percent to US $ 30.10 an ounce, and platinum climbed to a multi-year high of just under US $ 1,340 an ounce in mid-February. Gold, on the other hand, has corrected significantly down from the record high of 2075 US dollars per ounce in August 2020 to 1793 US dollars per ounce. What influences the prices of precious metals, what are the effects of the restructuring of the economy towards more sustainability and does gold defy cryptocurrencies? In short: what else can silver, platinum and gold be expected to do?
Silver: still upside potential despite the hype
The myth: The silver market has a reputation for being easy to manipulate. Only at the end of January did the silver price jump by 20 percent within three days. Fundamentally, there was apparently no particular reason for this. Private investors active on social media were blamed for this. They are said to have forced professional investors to cover their positions on falling prices and thus to drive up the price of silver.
The facts: The comparison with the price capers of US small caps such as GameStop, which were based on social media investor forums, falls short. The short sale rate in the silver market was significantly lower than at GameStop, for example. According to the Comex silver exchange, financial investors even bought more futures contracts than sold. With a market volume estimated at around $ 1 trillion, the silver market is too large to be easily manipulated.
However, there has long been a shortage of coins and bars on the silver market. Investors are therefore prepared to pay a premium for physical silver. To do this, they acquire exchange-traded silver funds (ETFs), which in turn have to buy the precious metal. In the short term, this can drive the price of silver higher.
The industry also processes the precious metal. Because silver is extremely conductive, it is an important raw material for the solar industry. It accounts for around a tenth of the demand. A strong tailwind is likely to come from government initiatives in China, the USA and Europe to make energy supplies more environmentally friendly. The US Silver Institute also expects a strong surge in demand from the use of silver in the automotive industry. There, the precious metal is used, for example, to control autonomous driving, but also for electrics and charging stations - and the trend is rising.
Our forecast: Silver is currently valued fairly, also in relation to the gold price. A further recovery in demand could give the economically sensitive metal a further boost. Apart from the pace of economic recovery, the price of silver - like the price of gold - is heavily influenced by the development of real returns. If real yields rise, i.e. nominal interest rates after deducting inflation, this would put a strain on the price of silver.
Platinum: coveted "green metal"
The myth: Platinum is the “green metal” par excellence. It is used in the field of fuel cell technology as a catalyst in electrolysis. It makes an eminently important contribution to the reduction of greenhouse gases. That fires the imagination of investors and lets the price rise rapidly.
"Platinum should become more valuable than gold in the medium term."
Max Holzer, Head of Relative Return
The facts: Platinum benefits from the trend towards green industry and economy. The price of the precious metal is currently not only driven by the fuel cell fantasy, but also by real demand, for example from the automotive industry. Stricter exhaust emission limits in Europe, China and the USA are an important influencing factor. Platinum also has catch-up potential as a cheaper replacement metal. It is increasingly replacing palladium or rhodium in car and truck catalytic converters. This process, initiated primarily for cost reasons, is only just beginning in China and the USA, for example. Robust demand from financial investors and a temporary supply shortage as a result of the pandemic are also responsible for the price rally.
The prospects of success for platinum in fuel cells are still open. It is currently not possible to conclusively assess how much further developments in this market will actually boost platinum demand. However, the price effect could be considerable. An example of this is the industrial metal nickel. The demand for batteries with a high nickel content has increased significantly in recent years due to the strong sales figures of the US electric car manufacturer Tesla and caused a rally in the nickel market.
Our forecast: Platinum is our favorite among precious metals. Overall, less platinum is currently being produced than purchased. This makes further price increases likely. Despite the cautious assessment of fuel cells, we consider the precious metal to be attractive. Platinum is likely to become more valuable than gold in the medium term. Investment programs for the green restructuring of the economy and the continued solid investment demand also contribute to this.
Gold: a valuable tool for risk management
The myth: As a scarce commodity, gold is a perfect hedge against inflation. The precious metal could lose this role because of the upswing of cryptocurrencies, among other things.
The facts: It is often overlooked that gold is much more than just a possible protection against rising inflation. It has little correlation with the performance of other assets such as stocks or bonds. This explains its reputation as a "safe haven", which it lived up to during the corona crisis. In historical retrospect, however, gold has also been able to maintain its value in real terms, i.e. after deducting inflation.
Gold continues to play an important role as a means of distributing risks in the portfolio more evenly. The central banks, for example, have become important buyers. Recently, however, their demand has weakened. Companies also rely on gold as an investment. The US electric car manufacturer Tesla wants to diversify its cash more effectively and invest more profitably. To do this, he invests, among other things, in gold and securities that reflect the gold price, but also in crypto currencies.
At the same time, this shows that gold and cryptocurrencies are likely to compete as investments in the future. In the past one to two years, the crypto currency Bitcoin has offered itself as an alternative to gold for hedging against possible inflation. This does not necessarily have to be negative for the development of the gold price. Rather, tactical shifts between gold and bitcoin investments are likely to occur. Most recently, the inflows into Bitcoin were significantly higher than in gold. After the rapid Bitcoin rally, stocks from the cryptocurrency could be shifted back into gold. This should support the gold price in the medium term.
Our forecast: Gold is currently in little demand as a currency in crisis. With progress in the vaccination campaigns, the signs point to an economic upturn. In contrast, the gold price could benefit in the short term from rising inflation expectations, driven by the prospect of further fiscal stimuli in the USA. However, we therefore do not expect a substantial, but only a temporary increase in inflation. The development of interest rates and inflation will be decisive for the gold price. Rising real interest rates would make gold unattractive compared to bonds, since gold offers no interest and there are storage costs. The persistently loose monetary policy tends to have a supportive effect on the gold price.
Conclusion: The precious metals market still offers one or the other investment opportunity despite the fact that prices have already risen. In particular, the efforts to reorganize the economy green are contributing to this. However, the selection is decisive here. We favor platinum due to accelerated demand from the auto sector. Gold continues to be valuable as a liquid alternative investment and hedge, especially in a multi-asset portfolio. It will continue to be used in the investment strategy as a means of distributing risks more evenly.
Max Holzer, Head of Relative Return in the Multi Asset division and member of the Union Investment Committee
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