Platinum's Q2 rally has been nothing short of astounding. Prices of the precious/industrial metal have been relatively staid for much of the year before taking flight in the beginning of June. They rose 36% in Q2 while leaving other metals in the dust.
Quick to pick up on the rally was VettaFi's Associate Director of Research Roxanna Islam. While gold and silver have been getting much of the fanfare, she noted platinum's outperformance compared to that duo in the beginning of July, and it's still continuing.
US/Japan Deal May Have Allayed Tariff Concerns
Islam highlighted the demand drivers of platinum, mainly its usage in automobiles (more specifically, catalytic converters). So its performance can be joined at the hip to the strength of the broader economy — namely, industrial demand or more specifically, the automotive industry.
Its Q1 sideways performance could be tied to investors being wary of tariffs affecting the automotive industry. However, a recent tariff deal between the U.S. and Japan may have allayed those concerns, especially with the latter being a major automotive producer.
When looking at the performance of the S&P indexes, the outperformance of the platinum-focused variant is apparent. It's closing in on the 60% YTD gain level, easily surpassing the precious and industrial metal indexes.
^SPIN data by YCharts
Rally Brings Producers Out of the Red
Platinum producers certainly have had plenty to cheer about. The mining industry has had its fair share of challenges as the global transition to electric vehicles (EVs) could mean less demand for platinum given its usage in catalytic converters for combustion engines. As such, platinum mines have been facing the threats of closure or more industry consolidation via mergers or acquisitions.
As Reuters reported, mines have been operating in the red for much of the year before platinum's recent rally has been able to help turn the tide. The price relief could be just a temporary fix to a long-term problem, however.
Potential Boon for Long-Term Platinum Prices
"About 90% of the industry is now making money or just breaking even, versus 40% at the end of last year," said Valterra Platinum CEO Craig Miller. He mentioned though that the platinum mining industry still has a long way to go before adding new production.
If platinum miners are not anticipating increased production anytime soon, level demand and less supply could be a boon for platinum prices long-term. The World Platinum Investment Council (WPIC), for example, noted that this year will be the third consecutive supply deficit for platinum.
Furthermore, it highlighted the inelasticity of platinum prices relative to supply and demand. If producers are not willing to ramp up production, then this would mean a continued supply deficit if demand stays unchanged. This could provide a perfect backdrop for prices to continue rising.
policy shifts in the U.S.
Platinum Offerings From abrdn
If investors want to get in on the current platinum rally, ETF options are few and far between. But Aberdeen Investments has a pair of funds worth noting in addition to its suite of ETFs that offer exposure to other metals. As a means to diversify a portfolio and capture the current rally, platinum ETFs can be an ideal ingress for getting that exposure.
"Improving supply/demand dynamics continue to drive platinum prices higher and position it as an attractive option in a diversified commodities allocation," Islam said recently.
For pure-play exposure, the abrdn Standard Physical Platinum Shares ETF (PPLT) would be the most ideal. Investors can gain access to market movements in the platinum's spot prices, eschewing the need for futures contracts. Additionally, platinum is less than half the price of gold per ounce. So those looking for precious metal exposure will appreciate the lower price.
Platinum's duality as a precious and industrial metal gives investors the opportunity to capture the upside on both of these uses. For those looking to lean more into the precious metals side of its investment characteristics, there's the abrdn Physical Precious Metals Basket Shares ETF (GLTR).
As of July 25, the fund is heavily skewed toward gold, comprising over 60% of the portfolio per the fund's prospectus. Given gold's rally and its tried-and-tested nature during times of market uncertainty, the exposure is certainly ideal. Silver gets the next highest allocation, with just above 27%. Palladium and platinum get the least allocations, with 4.72% and 3.56%, respectively. Gold and silver have been steady performers. But platinum's allocation could possibly a see a rise if it can prove its current rally is sustainable.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
Read more commentaries by VettaFi
