Platinum Regains Poise for a Rally

The Wall Street Journal, Rhiannon Hoyle

Commodity investors took a bath last month as precious-metals prices tumbled. More money flowed out of exchange-traded products than at any time since the start of 2005 as people sought better homes for their cash.

A net total of more than $3.7 billion was withdrawn from these funds during May, $3 billion of it from precious-metals products, the latest data from Société Générale shows. Volatile markets left investors in all asset classes with huge losses. The HFRX Global Hedge Fund Index—which tracks about 250 funds—fell 1.83% in the month to May 27.

But a recovery is underway already. Gold prices are slowly climbing back and confidence in some commodity markets is returning despite signs of slowing growth in the U.S. and China. Platinum, which has lagged behind the price rises of other precious metals, is increasingly grabbing the attention of investors who are betting that the recovery in developed economies may just surprise the markets.

While platinum wasn't immune to the broad commodity selloff in May, investors and analysts say the metal was hurt by a general desire among investors to reduce their risk in the short term. Not only is demand rising, but supply appears increasingly unlikely to keep pace.

Production costs are rising far faster than for palladium, its sister metal. Higher costs mean platinum prices would have to rise further to justify new mines.

One traditional metric for investors, the platinum-palladium ratio, is indicating investors and consumers are putting more money behind platinum, a sign that momentum may be gathering for a rally. The ratio, which shows how many ounces of palladium it would take to buy an ounce of platinum, is beginning to widen again after having fallen to as low as 2.15 when palladium prices peaked at $860 a troy ounce in February.