Platinum prices fell around 15% in the last three weeks. Prices are now at their lowest levels since January 2009. What is causing the price slump? Is it just the Volkswagen scandal? We don’t think so.
Just before prices plunged, the London Bullion Market Association (LBMA) held a conference in Vienna in which senior representatives from all sectors of the precious metals market attended. The audience predicted an average platinum price of $1,072 per ounce for next year.
They also predicted higher palladium prices for 2016, averaging $844 per ounce. If you read us, you probably know that we don’t like forecasts, especially when based on opinions. The LBMA audience better be lowering their forecast after prices nose-dived days after the conference.
Interestingly, the audience gave a neutral/bearish forecast for gold of $1,159.80 per ounce, while giving a bullish prediction for silver of $18 per ounce. To us, the fact that the audience expects silver and gold to move in opposite directions just shows a lack of understanding of what is currently moving prices.
All precious metals are heading south, reflecting a general malaise in the sector. A strong dollar, weak global demand and oversupply are hitting investors’ sentiment across the board and until this general sentiment changes, no individual precious metal is going to buck the downtrend.
Sure, Volkswagen’s scandal raised concerns that demand for platinum could suffer as investors worried about the sustainability of the diesel market, which primarily uses platinum as a catalyst. But despite the announcement, platinum prices managed to rally partly thanks to the good prospects of Toyota’s fuel-cell car. However, we already warned that this price rally wouldn’t last, bullish news is only creating short-lived price rallies that will later fall with the general bear market.
Even palladium, which in theory should benefit from Volkswagen’s scandal, fell sharply since October.
What This Means For Metal Buyers
Focusing solely on the specific fundamentals of each individual precious metal is a mistake. This market is being driven by macro factors and the chance of any individual metal bucking the general trend is very low. We expect precious metals to bottom at the same time, but that time hasn’t come yet. A rising dollar just delayed that bottom sought by investors.