One Precious Metal Is Flying High, Yet No One Notices

Gold and silver continue to trade higher this week, receiving another boost on new geopolitical concerns and expected Fed rate cuts next week.

Meanwhile, a district court temporarily blocked President Donald Trump's firing of Fed Governor Lisa Cook who stands accused of mortgage fraud. Against that backdrop, the market is virtually certain the Fed will be cutting rates next week – possibly even by 50 basis points.

The case for having solid exposure to physical gold and silver is as strong as ever, but Americans are mostly sitting out the metals market.

Retail demand has picked up over the past two weeks but selling and profit taking continues. It may take silver breaking above $50 before the American public jumps on board.

Premiums on coins, bars, and rounds are at 6-year lows -- thanks to the high degree of retail selling and the glut of inventory in the U.S. dealer market. That spells opportunity for those who are actually accumulating gold and silver.

To be sure, gold and silver are having a stellar year, but another metal is outperforming them both.

Platinum.

The metal is up just over 50 percent since the beginning of the year. Most of that gain has occurred since early June.

Investors are taking notice.

According to the World Platinum Investment Council (WPIC), global platinum coin and bar investment surged by a staggering 660 percent in the second quarter. This was driven by a dramatic 55 percent increase in platinum coin and bar demand in China alone.

Meanwhile, platinum jewelry demand grew by 32 percent in Q2, hitting the highest level in 10 years.

This comes within a market that is already facing supply constraints.

The majority of platinum demand comes from the automobile sector. It is an important component in automobile catalytic converters. Auto demand for the metal hit a 7-year high in Q1. There was a contraction in automotive demand during the second quarter due to tariff worries, but automotive sector platinum demand only dropped by 2 percent.

Platinum is also used in electronics, medical technology, and the chemical industry.

Demand for the metal in hydrogen-based applications is rapidly increasing and is expected to grow by 19 percent this year. The recent budget bill passed by Congress included the continuation of the clean hydrogen production tax credit.

The global platinum market charted its third straight significant structural deficit last year, and we should expect these supply shortfalls to continue into the foreseeable future, according to the WPIC.

Platinum demand outpaced supply by 995,000 ounces last year. That was 46 percent higher than forecast.

Above-ground stocks of platinum fell by 23 percent last year and are expected to drop another 25 percent this year. This represents less than four months of demand.

The supply deficit isn’t likely to ease soon. The white metal is historically price-inelastic in the short term, meaning supply and demand don’t quickly respond to price increases.

Given the supply constraints, World Platinum Council CEO Trevor Raymond said the investment case for platinum remains “compelling.”

Before 2011, platinum was generally more expensive than gold. In 2015, this historical trend reversed with the spread between gold and platinum growing wider.

Platinum hit an all-time high of $2,213 an ounce in March 2008. This was higher than the record price gold hit in 2011.

It remains to be seen whether platinum will regain the price parity with gold we saw before the mid-2010s, but given the supply and demand dynamics, it is reasonable to be bullish on platinum in the near to mid-term.

Gold is up 1.6% to come in at $3,659 an ounce, hitting all-time highs once again during this its 4th straight week of gains.

Silver is once again leading the way though. The white metal is up 3.0% now, expanding on its 14-year high to check in at $42.43 an ounce. The gold to silver ratio continues to narrow in favor of silver and that’s something we will continue to keep an eye on and report about in the coming weeks. That ratio is now just about 86 to 1.

As for the PGMs, platinum is up 1.7% to trade at $1,415. And finally palladium is having a real nice week, gaining 7.6% to come in at $1,227 as of this Friday morning recording.

********