For owners of a platinum ETF, the price development of the metal has not been a source for joy this far into 2012. Platinum started this year well, and as we predicted, the price shot up to over $1700 in February. But after that, it has been caught in a downward trend that doesn't look too good right now and will likely continue before it flattens out. The series of lower peaks indicates that the market is losing faith in the precious metal.
It seems financial instability, in Europe particularly, and surplus metal in the global markets is to blame for many analysts cutting their forecasts for the average price of platinum this year. An average only a little over $1600 an ounce was not what we had in mind at the beginning of the year.
European car manufacturers are still subdued because of the ongoing Euro crisis, and demand less platinum then they otherwise would. It's anyone's guess when that situation may show improvement.
On the other hand, there's demand for platinum from investors, as the interest for investing in precious metals remains high. Gold is popular, as always, but some of the enthusiasm is expected to spill over into platinum as well.
In 2011, there was a global production surplus of platinum of about 12 percent, which is also due to a supply increase of five percent. Even so, the average price for the year was an all-time high. There's expected to be a slightly larger surplus in the platinum production this year.
We should not expect the price of platinum to bounce back anytime soon, as there seems to be a stockpile of the metal sloshing around in the global markets. During the past few years, a surplus of more than 4 million ounces has accumulated in the market, considerably dampening the price so far this year. The situation is expected to continue for at least a couple of years. The proper response to this is a reduction on production, but it seems one is unlikely to follow for a while.
For comparison, if production of platinum were to halt entirely, this stockpile would cover the global demand for almost a year.
The stockpile and recycled platinum will act as a buffer against an increase in the price, even though the political unrest in southern Africa is threatening the supply side.
We should be prepared for the platinum price development to remain moderate for the next two or three years.
After that, it seems we might be in for a nice development, as the stockpile gradually decreases and production slows. The mining companies have no intention of investing in higher production with prices as low as around $1600 an ounce, and that may help the price increase sharply a few years from now.
It seems that for the time being, investing in a platinum ETF is only for the long term - or for the adventurous.