China Demand Sours, Sending Platinum Price Tumbling In May

Friday, June 3, 2016

Now that we’re three days into June, we have an opportunity to step back and evaluate what’s happened to the platinum price over the last month. And while May at first looked like a bull market for the precious metal, a poor performance over the past few weeks erased most of the gains and left platinum about where it had been in April.

What’s the reason for this tumble, when platinum had showed signs of gaining on gold…and even flirted with breaking resistance at $1,100? One of the primary culprits: souring Chinese Demand.

The Price of Platinum in May

This chart from Nasdaq.com gives a very thorough reading of the platinum price over the past couple of months—and now that we’re in June, we’re able to get a comprehensive picture of what happened in the month:

Just a few weeks ago we were talking about platinum seeing higher prices and flirting with the possibility of overtaking gold once again. And then, as you can see from the chart, platinum fell back to triple digits in what appeared to be a near free-fall. So what’s to blame?

To this, we turn to those old economic truths: Supply and Demand.

Dwindling Demand from China

Platinum, as a precious metal, has a unique link to demand in the private market as jewelry. This is true for silver and gold, of course, but for platinum, the effect sometimes seems multiplied. Although China and India have extensive gold markets for jewelry, China is clearly the number one fan of platinum jewelry across the world—and when China moves, it has a material effect on the price of platinum.

We saw that in May. As Reuters reports, “China's penchant for luxury platinum jewelry is fading despite lower global prices, leaving world demand for the metal exposed to sharper decline. China is by far the biggest market for platinum jewelry, making up more than 60 percent of global manufacturing use for the white metal in 2015. When broken down on a regional basis, Chinese jewelers are the biggest single consumers of platinum, buying 1.561 million ounces of the metal last year.”

If China is the global leader in platinum demand, and is seeing sharp decline in the demand for this precious metal, then it stands to reason that the price of platinum can free fall, as it did in late May.

Now, however, we should turn our focus toward June and find out what may happen next.

What Happens to the Price of Platinum in June?

If lax Chinese demand brought platinum down in May, we should look for this same variable and where it may go in June. To do that, try to get a gauge on the World Platinum Investment Council’s analysis of the global supply and demand of platinum. This may be considered something of a “Farmer’s almanac” for supply and demand, making predictions in the weather well ahead of the days the weather arrives, but it’s still worth taking into account. This report sees less demand, but also less supply, suggesting that platinum may not make any major moves for a while.

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Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.