In addition to gold and silver, there is one precious metal that is very popular with traders because of its volatility and high liquidity, but also because of its rarity: platinum. Little known to the general public, this precious metal is nevertheless the subject of billions of dollars of trade each year throughout the world. To learn how to speculate on the price of platinum, here is some basic information and a full explanation of its trading, indicators and history on the exchange markets.
First of all, we will keep a close eye on South Africa and Russia, which are currently the main producers of platinum and which alone account for more than 90% of world production. It is this concentration of supply that has led to the high volatility of this asset. It is therefore known that the level of production in these two countries will have a very strong impact on its price.
In general, the rarity of the metal should also be considered. Indeed, platinum is a rare raw material whose production is much lower than that of other precious metals such as gold. In addition, platinum reserves are also lower than those of other commodities, which can lead to a long-term risk of shortage and a consequent rise in prices.
The economic situation will also be closely monitored. Indeed, we know that the use of platinum mainly concerns the automotive sector with 38% of the world consumption as well as the jewellery sector. Both these sectors are highly cyclical. The growth of the countries that import the most platinum, namely Japan, the United States and Europe, will be followed with interest as it will have a direct impact on demand and therefore on prices.
Finally, one should also pay attention to the value of the U.S. dollar in the foreign exchange market, as this is the currency in which platinum is quoted. There is a negative correlation between the value of the dollar and the value of platinum, which means that when the dollar falls in value, it often causes the price of platinum to rise.
Little known, platinum is nevertheless a highly sought-after precious metal. It is even rarer than gold with only a little over 6 million ounces produced each year. Platinum is quoted in US dollars per ounce and one ounce here represents just over 31 grams of platinum. But it can also be found on some charts displayed in Euros per ounce.
The countries that produce platinum are mainly South Africa and Russia, but the volumes extracted from the mines are 12 times less than those of gold.
Like other metals, such as zinc, platinum is mainly used by the automotive industry, which buys nearly 60% of the world's production. It is used in the manufacture of catalytic converters. Another smaller part of this production (20%) is used by the jewellery industry.
Platinum is a very valuable metal and is considered a precious metal because of its rarity.
Platinum is listed on the London market, which also handles the listing of palladium. This is the London Platinium and Palladium Market (LPPM). Its quotation is revised only twice a day.
Platinum can also be traded through futures and options contracts on the Japanese TCE (Tokyo Commodity Exchange), where more than 10 million transactions in the precious metal take place each year.
Smaller volumes are also traded on the NYMEX (New York Mercantile Exchange) and MIDAM (Midamerica Commodity Exchange in Chicago).
Historically, platinum prices have been closely linked to the performance of the automotive industry. For this reason, platinum prices have risen sharply since the early 2000s, reaching an all-time high of $2,230 per ounce in 2008. After 2008, and like all other commodities, its price fell sharply as a result of the global economic crisis and the recession that affected the automotive production sector, and reached $1,000 per ounce.
Since then, as production has outstripped demand, platinum prices have continued to decline.
There are several factors that can have a significant influence on platinum prices, and it is important to be aware of these factors to determine the direction of the trends.
Among these factors, we can mention stocks and of course the figures on demand and supply, but also the policies of the two countries that produce the most platinum and especially that of South Africa, which supplies nearly ¾ of the world's platinum.
Of course, in order to anticipate the volume of demand, it is also necessary to take an interest in the economic situation of the importing and therefore consuming countries. These countries are mainly Japan, the United States and a few European countries that are mainly involved in the automotive industry, such as France and Germany.
This is because the performance and demand of the automotive sector has a strong influence on platinum prices, especially for companies that manufacture environmentally friendly vehicles and therefore use catalytic converters.
In the past, we have seen prices rise when the automotive sector was booming, and then fall when the sector declined and demand fell, as was the case in 2008.
It is also important to be aware of the impact of rising platinum prices on demand, as sharp increases often result in reduced demand from the jewellery sector and an attempt to substitute by automobile producers.
The following are the main things to watch out for:
Platinum is traded both over-the-counter and on organized markets. For example, the reference quotation place for this commodity is the LPPM or London Platinium and Platine Market. The platinum quotation is revised twice a day. Platinum can also be found on the NYMEX or New York Mercantile Exchange futures market, the CME or Chicago Mercantile Exchange and the Paris Stock Exchange. So be sure to check which market the price is quoted on when trading online from your CFD platform.
As we have seen earlier in this article, the price of platinum is closely linked to the price of the US dollar. This is because it is in this currency that platinum is quoted. Thus, when the dollar is weak relative to other currencies, buying platinum becomes more attractive to investors using a currency other than the dollar, and conversely, when the dollar is strong, the exchange rate is less attractive.
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