Platinum Rises on Toyota Fuel-Cell Car Announcement

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Photo: Hessam Bakhtiarzadeh

In September, the Volkswagen scandal sent platinum prices to new lows. Investors feared the end of diesel cars and with over 40% of platinum demand coming from the making of auto catalysts for diesel cars, it’s hard to find bullish arguments to counter such fears.

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However, in October, platinum prices managed to make a comeback, up 13% in less than 3 weeks. So, what is causing this metal to rise in the face of the Volkswagen scandal?

Platinum near resistance levels after bouncing from October's lows

Platinum is near resistance levels after bouncing from October’s lows. Source: MetalMiner analysis of @StockCharts.com data.

3 Factors Boosting Platinum:

  • The US dollar’s weakness: A falling dollar helped push up commodity prices this month. Moreover, the combination of lower rates and a weak dollar is particularly good for precious metals. Gold, silver and palladium also rose this month. A metal is more likely to move up when it’s helped by strength in its group, in this case precious metals.
  • Toyota’s announcement: The Japanese automaker, which will surely retake the top spot from Volkswagen as the world’s largest automaker, announced last week its ambitious plan to almost eliminate conventional gasoline vehicles from its lineup by 2050. The Japanese manufacturing giant is betting big on hydrogen fuel-cell technology and sees its fuel-cell car as an improvement on electric vehicles, with longer autonomy and shorter refueling time. Hydrogen cars might not sell as easily Toyota believes, but their decision’s impact on platinum demand is huge, causing investors to react to Toyota’s announcement, itself. Today, hydrogen fuel-cell cars need 32 grams of platinum versus 2-4 grams of PGM for the average gasoline or diesel vehicle.
  • Oversold condition: Finally, we need to remember that prices move in a zig-zag and after prices fell last month to new lows, it’s natural to see a price bounce. So far, we should see this price rally as a normal reaction and prices might lose momentum as they approach resistance at $1,040 per ounce.

What This Means For Metal Buyers

We would take this price rally more seriously if prices break above resistance levels. In the meantime, the overall bearish commodity outlook will keep putting pressure on platinum and the rest of precious metals, making this price rally likely to be short-lived, much as we’ve seen with similar announcement-based rallies since 2011.

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A breakdown of the dollar, however, is something that could improve the overall commodities outlook.

 

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