What determines the exchange rate of platinum?

Platinum is another precious metal that can be traded but is often overlooked by traders in favor of gold or silver. And that’s a shame because, in addition to technical analysis, platinum can also be effectively used in tandem with the fundamentals, which in this case are relatively easy to identify and which influence the price of platinum to a high degree.

Which market factors determine the platinum price?

Although there are many more factors that influence the price of platinum, we have listed the 4 most important ones below. So whether you want to know how to trade or are tempted by the more passive investment platinum, you will find the information described in the following lines useful for your purposes.
 

The main factors affecting the platinum exchange rate include:

• The geopolitical situation in South Africa

• Demand and supply of platinum in the industry

• Correlation between platinum and silver

• The US dollar

Factor 1: Geopolitical situation in South Africa

Approximately 75% of platinum production comes from South Africa. Therefore, news about production trends, the political situation, elections, and the various unrest that is very common in this country has a major impact on the price of platinum.

For example, in the first half of 2023, there were frequent power cuts in South Africa and strikes in transport companies, which can be read about in the news reports commonly available on the Internet.

Power outages are a problem for platinum mining because the mines need to be lit, some of the machinery that is necessary for platinum mining and processing runs on electricity, etc. Therefore, if there are power cuts, this has the effect of reducing production, which then causes the price of platinum to rise. According to Bank of America, the price of platinum could rise as high as USD 1 500 per ounce by the end of 2023 due to frequent electricity problems in South Africa.

So if you want to keep an eye on the future of the platinum price, watching the news from South Africa is a must.

Factor 2: Industrial supply and demand for platinum

Platinum is primarily an industrial commodity, and although it is also used in the jewellery industry, most of its production is consumed in the automotive industry for the production of catalytic converters. In addition, platinum finds use in the chemical industry, glass, where demand from China plays a strong role. For 2023, demand in these sectors is expected to grow even though the global economy is still threatened by recession.

In terms of supply, experts estimate that platinum is up to 20 times rarer than gold and up to 100 times rarer than silver. The supply of platinum is therefore limited, and this, together with the problems with platinum mining in South Africa, is putting pressure on the growing deficit between supply and demand, which analysts expect to reach 980,000 ounces in 2023.

In the future, although the gradual shift to electric vehicles will affect platinum demand, so some slowdown is to be expected, but currently rising demand and limited supply create a case for an upward trend in the platinum price.

Factor 3: Correlation between platinum and silver

Like silver, platinum is also widely used in industry, which has an impact on the platinum and silver exchange rates and their correlation with each other, as shown in the chart below.
 

_{Correlation between silver and platinum on the weekly chart}

In the upper window is a chart of silver, in the lower window we can see the development of the platinum rate. It can be noticed that both metals tend to move in the same direction. These correlations work even on lower time frames and can be conveniently used for intraday trading.

Factor 4: The US dollar

As the platinum price is quoted in USD, there is often an inverse relationship between the platinum price and the US dollar, as can be seen in the next chart.
 

_{USD index and platinum on the weekly chart}

In the upper window is the USD index and in the lower window is platinum. We can see that when the dollar weakens, platinum tends to strengthen and conversely, when the dollar strengthens, platinum declines. While this is not always true, a pattern can be traced.

Conclusion

Platinum is a metal whose price is driven by demand, particularly in the automotive and chemical industries, and supply, which mainly depends on South Africa. These factors are relatively easy to track, making platinum an instrument where technical analysis is effectively complemented with fundamental factors.

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