Regardless of the rise in the price of platinum on the Shanghai Gold Exchange, purchases of precious metals in 2021 continue to gain momentum. Cumulative trading volumes in the first five months of the year were 637 thousand ounces, up from 647 thousand in the same period last year, which included a record 343 thousand in March. The sharp increase in trading volumes at the end of the first quarter of 2020 was driven by the platinum price drop.
Platinum demand in China is showing an upward trend. Today’s price is almost twice as high as in March last year, however, for several months there has been a trend towards an increase in purchases. It seems that the activities of commercial banks and industrial end-users are driving demand, and as a result, purchases on the Shanghai Gold Exchange are becoming more diversified.
Commercial banks are becoming active buyers of platinum to support the development of the precious metal leasing business in China. Previously, platinum was only available through the Shanghai exchange, but the growing participation of banks is creating a more liquid market for end users in the Middle Kingdom.
Also, the growth of industrial demand contributes to the improvement of market sentiment. Industrial platinum demand is projected to rise by nearly 20% this year to more than 2.2 million ounces, with China accounting for approximately 37%. The growth of the petroleum and chemical industries, as well as the increased demand for glass in China, will lead to the fact that industrial demand for platinum will reach record levels in 2021. This year, China plans to commission several new glass factories and expand production. Metal purchases often occur several months in advance, which can affect trading volumes through the Shanghai Stock Exchange in the first few months of the year.
Despite this, total demand for platinum in 2021 is projected to be only marginally higher than before the pandemic. The industrial market surplus will amount to almost 1 million ounces – more than enough to meet the investment demand for platinum. Once the platinum metal demand from industrial end users is met, the pace of procurement is likely to slow. After strong performance in the first quarter of 2021, the price of platinum is already returning to its seasonal trend, which suggests a decline in the second half of the year.
Central banks continue to show interest in gold. Initial estimates of gold demand from central banks show that global reserves increased by 69.4 tons in April (source: World Gold Council).
Thailand was the leader in gross purchases of 74.1 tons (43.5 tons); Turkey has replenished its gold reserves for the first time since October (13.4 tons). Germany (-1.3 tonnes) and Russia (-3.1 tonnes) acted as net sellers.
Russia is reportedly removing dollar assets from its National Wealth Fund (NWF) in favor of increasing the share of the euro, Chinese yuan and gold (source: Reuters). Currently, 35% of the NWF’s liquid assets, which accumulates Russia’s oil revenues and is part of the country’s gold and foreign exchange reserves, are in dollars, but will be redistributed over the next month. The Central Bank of Russia has been the largest gold buyer in the world for the past several years. The bank suspended its buying program in April last year, which led to a slowdown in the overall rate of gold purchases in 2020 (326.3 tonnes).
Central banks are expected to remain net buyers in 2021, although the pace will be more modest than in the years before the pandemic.
Gold is falling and inflation is rising. In May, inflation rates in Germany and the eurozone increased, with higher oil prices being the main component of the growth. ECB members said the rise in inflation is temporary, but unless investors see confirmation, gold is likely to continue to rise. In the short term, gold has been overbought, and although a correction began last week, gold may dip lower.
Silver failed to hold above $ 28 an ounce last week and fell along with other precious metals.
Silver has been lagging behind gold for several weeks, but ETF inflows are slowly picking up steam after months of outflows.
Global reserves currently stand at 939 Moz, below their peak of 1.007 Moz in February, but still high by historical standards.
If inflation concerns push gold higher in the medium term, silver will win as well.
Platinum refining is projected to fall short of pre-COVID-19 levels this year due to smelting capacity constraints faced by some refiners. High prices for palladium and rhodium mean that gasoline autocatalysts will take precedence over diesel autocatalysts, limiting platinum recovery from autocatalysts. However, on an annualized basis, the supply of recycled platinum is estimated to increase by about 100 koz (+ 6%) compared to 2020.
Higher vehicle scrappage compared to last year, as well as a higher platinum price on jewelry swaps, are projected to increase recycled platinum to about 1.8 Moz. Secondary platinum supply will account for about 23% of total supply in 2021. The precious metal price is in the support zone. A close below $ 1.150 would lead to further decline.