Platinum's rise is not a trend

Mar 20, 2009

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Platinum has bounced by about 40% since it crashed to a near five-year low under $800 an ounce last autumn, although it is still 50% off last year's record of $2,308 an ounce. Being a precious metal, platinum has a tendency to "mimic" gold's performance as a safe-haven investment, says John Reade of UBS. As investors have fled to safety in recent months, the holdings of platinum ETFs (exchange-traded funds) have risen sharply.

This year's inflow has already surpassed 2008's total, says Barclays Capital, which also notes that jewellery demand, dominated by China, is healthy thanks to the recent price slide. However, "the bulk of platinum demand still looks weak". More than half of platinum is used in catalysts for motor vehicles. With car sales falling off a cliff – the latest discouraging figure is an 18% annual fall in European car registrations in February – demand has weakened and supplies are rising.

Precious metals group Johnson Matthey reckons demand will fall by 6% this year and HSBC expects the market will be in surplus after years of deficits. So for now the weak global economy looks likely to cap any rallies. Deutsche Bank expects platinum to average $1,000-$1,025, a shade below the current price of $1,050, over the next two quarters.

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