Platinum prices have suffered from significant sales pressure in recent weeks as concerns about the health of the global economy grow. Platinum and palladium are both used in the construction of catalytic converters, with prices of both precious metals strongly dependent on automobile sales. Analysts believe that demand for palladium and platinum will shrink among emerging countries, with further decreases in demand in the United States and the European Union. Also basic and non-ferrous metals such as copper, nickel, zinc and lead have already become a victim of recession fears – with the prices of these metals plummeting in recent weeks.
Investors are not only worried about the pace of Europe's escalating sovereign debt crisis and the extreme levels of US debt, but also about rising downside risks for the Chinese economy. China's communist leaders have made little progress at tackling the imbalances affecting the Chinese economy. These imbalances are caused by China's export focus, which is still in place despite continuously shrinking consumer confidence in the US and Europe. At the height of the financial crisis, central banks all around the world pumped huge amounts of liquidity into financial markets to prop up the global banking system and to free the world economy from recession. Since a great part of this excess liquidity found its way into China's property markets, experts are warning of a huge bubble about to pop in Chinese real estate markets. Commodity demand has surged as a result of China's building boom, with consistently-high demand for raw materials from the country's construction industry.
A collapse of domestic property prices – mainly caused by tighter lending conditions – means that China's housing market is likely to suffer a steep price decline. In addition to a shrinking demand for basic and non-ferrous metals, platinum and palladium face further downside risks triggered by a sharp decline in China's demand for cars. Moreover, the margin hike on platinum futures and options has caused many investors to offset long positions in the metal. Though the gold/platinum ratio fell yesterday, investors on futures markets have reduced their long positions in the platinum sector by almost 25% in recent weeks. According to the German precious metals trading group Heraeus, the technical situation on the platinum price chart does not look good following the fall below the key support level at $1,500 per troy ounce last week – though the price has subsequently risen above $1,500 again.
Further downside risks had thus to be factored in by investors. Platinum miners are coming under increasing pressure, as falling prices and rising costs could lead to the shut down of various mine operations – though in the long run this trend should positively impact platinum's price development again, since mine closures would cause future supply shortages. In addition – and unlike paper currencies – no central bank can produce unlimited quantities of platinum and palladium.