Pimco favours ‘unloved and relatively cheap’ platinum over gold
Investors have deserted metal, which has fallen out of favour amid shrinking demand and excess supply
Platinum could be the dark horse among precious metals, according to a money manager at Pacific Investment Management Co (Pimco).
Nic Johnson, Pimco’s MD and portfolio manager for commodities, says he prefers the metal over gold.
Used in autocatalysts of diesel engines and jewellery, it is near the cheapest yet relative to both bullion and palladium, after tumbling 14% in 2018.
While investors have poured into gold funds, they have deserted platinum, which has fallen out of favour amid shrinking demand and excess supply.
The possibility the trend reverses even slightly represents a buying opportunity, Johnson said. With $1.72-trillion under management as of September, Pimco is one of the world’s largest bond managers.
“Platinum is relatively unloved and relatively cheap compared to other precious metals,” Johnson said.
“It would only take a rotation of a few percent of the assets in gold exchange-traded funds moving to platinum to really have a big impact on platinum supply-demand balances and prices.”
Platinum was the weakest of the four major precious metals in 2018 as environmental concerns reduce demand for diesel-powered cars. By contrast, equity market turmoil and an increasingly dovish US Federal Reserve have supported gold and silver, while palladium has benefited from its use in vehicles that run on petrol.
Gold’s premium over platinum hit a record at the start of January after a rally in the last quarter of 2018 pared its annual decline to just 1.6%.
Holdings in platinum funds are close to a five-year low.
Being a much smaller market, even a marginal shift in flows from gold funds could have an outsized impact on platinum prices, according to Johnson. The same is true for use in jewellery, Johnson said.
“The possibility for some rotation exists and can have an asymmetric benefit to platinum,” he said.
Spot platinum traded at $800.12 an ounce on Wednesday, not too far from the lowest intraday price in a decade, and gold was at $1,290.65 an ounce. While bullion could still climb above $1,400 in 2019 if interest rates trend lower or investors flee risky equities in search of a haven, Johnson says it is fairly priced or even marginally overvalued by a few percent.
“Platinum is a more compelling metal to own than gold,” he said.
The likelihood that the market will remain in surplus in 2019, albeit a smaller one, should temper bullish expectations.
The World Platinum Investment Council estimated in November that supply will outstrip demand by 455,000oz in 2019, down from 505,000oz in 2018. But it still sees consumption rising about 2%, driven by industrial usage and investment flows.
Johnson is not alone in being bullish on platinum. There is upside to the metal’s prices as a weaker dollar and lower Treasury yields will be supportive, while Chinese jewellery demand is expected to bottom out, according to ABN Amro Bank, which sees prices averaging $938 in 2019.