Platinum opportunity in market rout

Platinum prices have dropped while gold has strengthened in the last few days, as softer China data appears to be the trigger for broader concerns about emerging markets and a sell-down in more "risky" assets. It also worth pointing out that this sell-down has occurred while US treasuries have rallied quite strongly, which is a different dynamic to mid-2013.

Sometimes analysts try to justify these kinds of movements in metals post the event even if it doesn't make much sense.  For example, it could be argued that the sharp drop in the South African rand has balanced the risks to platinum prices.  That said, part of the specific weakness in the rand is because platinum miners are striking, restricting metal supply.

In reality, these type of market movements represent an opportunity rather than additional cause for caution, particularly in the case of platinum.

While heightened concern about the path for Chinese growth is good reason to be worried about a lot of other commodities, it is less so for platinum.  Platinum sales on the SGE have actually been very strong in the year to date, despite prices mostly going up.

Investment via ETFs does create an overhang for demand in 2014, with small outflows in the last month or so.  But it does seem very unlikely that platinum ETF flows will experience what happen to gold anytime soon.

It is frustrating that many analyst talk about the risk of further investor selling as a risk to precious metals without saying anything about the investment thesis.

For platinum, nothing has really changed for those holding metal, with the market still projected to be in meaningful deficits and demand gradually improving.  For gold, there was a huge change in the investment thesis in 2013 as real interest rates turned positive and are likely to continue to rise.

The recent pick up in LBMA gold prices has eaten into the Shanghai premium, which was at ~$20/oz at the start of this year.  Interestingly, volumes have picked up, perhaps as investors chase the recent international price gains.

What is tricky for gold is that recent events are unlikely to sway the FOMC from continuing the taper of bond purchases.  In a the near term, the question of buying gold is very much the same as whether you would buy US treasuries.  After a ~30bps rally in 10yrs since the start of the year, its hard to see both bonds and gold rallying too much further at this stage.