The market hates metals lately.
It’s easy to see the bear case. Everyone knows that the trade war is going to slow China’s growth. China is the “mouth of the world” when it comes to commodities … particularly metals.
It takes in the raw ores. It smelts them into pure metal. Then it builds stuff out of it and ships it to us.
That means if China’s demand slows, the prices of things like copper, lead, zinc, silver and gold go down. Lately, the prices of those metals are way down. All of them are near two-year lows.
China is in the middle of a trade war with the U.S. Every day we see another shot fired between the two countries. Every time some bit of bad news leaks out, metal prices take another hit.
But while those metals are doing badly, the news crushed the price of one metal.
The Trade War Has Dampened Expectations
We use this weird, semiprecious metal for jewelry and making diesel fuel.
I’m talking about platinum, which just hit a 14-year-low price. You can see what I mean from this chart:
Platinum is cheaper today than it was during the financial crisis. It hasn’t been this low since 2004 … 14 years ago.
This makes no sense because platinum supply is down.
In the first three months of 2018, demand exceeded supply by 125,000 ounces, according to the World Platinum Investment Council. South Africa’s mines, which produce most of the platinum in the world, struggled. Output hit its lowest point since 2016.
However, the Council recently revised the once-rosy platinum demand forecast. Analysts expected jewelry demand to rise on global economic growth, particularly in China. The trade war dampened that expectation.
Platinum Is Ready for a Huge Bounce
The fundamental case for platinum remains strong.
Supply from aging mines in South Africa is down. It is still a critical catalyst for the petroleum industry. And it is incredibly cheap right now.
That said, the price is still in free fall. It has not yet found a bottom. We don’t know how far it will fall, but we will be watching.
Platinum looks like a sector that could take a huge bounce soon. Once the fear of the trade war fades, fundamentals will kick back in.
Demand exceeds the supply of platinum today. That situation looks like it will get worse before it gets better. So, when platinum prices begin to rise, we can expect them to rocket higher.
That’s what we’re waiting for right now.
Good investing,
Matt Badiali
Editor, Real Wealth Strategist