Platinum has witnessed a significant surge, climbing over $200 since mid-September to just over $1,600 per troy ounce. 

This remarkable 80% price increase makes it the sharpest riser not only among precious metals but across the entire commodities sector, potentially surpassing its 2009 record of a 56% annual increase.

Historical valuation and buyer interest

While the momentum sparks skepticism, the current price level can be “put into perspective.” A troy ounce of platinum at just over $1,600 is “only” as expensive as it was 15 years ago. 

Barbara Lambrecht, commodity analyst at Commerzbank AG, noted: 

In other words, today it still takes 2.5 troy ounces of platinum to buy one troy ounce of gold, whereas the average over the last ten years was less than two, and before 2015 it was less than one troy ounce. 

“In historical comparison to gold, platinum is therefore still trading at a low valuation,” she added.

This relatively low valuation has attracted two groups of buyers: ETF investors, who saw significant inflows in September, and jewellery buyers. 

According to the World Platinum Investment Council (WPIC), Chinese jewelry demand in the second quarter was 137% higher than a year earlier, with investment demand for bars and coins up by 176%. 

However, “momentum has already slowed,” indicating limited potential for a recovery in jewelry demand.

Supply deficit and future outlook

The platinum market faces a supply deficit for the third consecutive year. 

While higher prices generally incentivise increased supply through improved mining profitability and recycling, the WPIC is skeptical about a significant expansion of mine supply. 

Lambrecht stated, “At current prices, 90% of production is already profitable, while the development of new mines is very capital- and time-intensive. 

Only two new projects are expected to increase production, but the ramp-up to full production is not expected before 2029. 

Consequently, mine supply is expected to continue a slight decline in the medium term, with only a moderate expansion in recycling supply offering a slight dampening effect.

Dampened demand and forecast adjustment

On the demand side, high prices tend to have a dampening effect. The substitution effect of palladium by platinum is likely to gradually phase out. 

While automotive industry demand is rather price-inelastic, jewelry demand is price-elastic but also influenced by the price ratio to gold, which currently supports demand. 

“All in all, there is little to suggest that the rise in the price of platinum alone is sufficient to bring about a trend reversal in the fundamentally supportive environment of a continuing undersupply,” said Lambrecht. 

Against this backdrop, we believe that platinum will continue to be supported by the upturn in the gold market in the near future. 

However, following this year’s sharp price increase, the chances of outperformance are likely to gradually diminish. 

Commerzbank AG has raised its forecast for a troy ounce of platinum at the end of next year to $1,700, up from the previous $1,500.

Palladium

Palladium prices have increased significantly by 44% since the beginning of the year.

However, palladium continues to underperform compared to other major precious metals due to weak demand in recent years. 

This is primarily attributed to a slump in automotive industry sales, particularly for combustion engines. 

Unlike platinum, palladium’s demand is disproportionately affected by the automotive sector, leading to a significant negative impact.

In May, the WPIC forecast a palladium market supply surplus for the coming year.

Demand prospects have been marginally revised upwards, primarily due to the comparatively lower price trend of palladium against platinum. Consequently, the WPIC now forecasts a supply surplus to occur only in 2028.

“Nevertheless, there are clear signs of an easing in the palladium market, which should limit the catch-up potential for palladium,” Lambrecht said. 

We are also raising our forecast for the price of palladium, but do not see any further upside potential for next year.

The German bank expects palladium prices to reach $1,350 per ounce by the end of 2026, compared to its previous forecast of $1,300 an ounce. 

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