Investing in precious metals like platinum and gold requires understanding their price cycles. Over a commodity cycle, platinum and gold prices go through phases of exploration, production growth, oversupply, and undersupply. Identifying the current phase helps investors determine if prices will rise or fall. For example, platinum is currently in an oversupplied state so prices may continue falling before recovering. Meanwhile gold is nearing a cyclical top so investors should consider reducing exposure. By analyzing supply and demand dynamics, investors can time entries and exits to profit from platinum and gold price swings.
Platinum demand has stagnated while new supplies pressure prices lower
Platinum has very recently transitioned from a state of high prices and rising production to oversupply and falling prices. Expanded platinum mining capacity has brought substantial new supply to the market, just as higher prices have eroded demand growth. For example, platinum substitution in industrial uses and jewelry is now occurring, with palladium displacing platinum given its much lower price. This combination of rising supply and stagnating demand has shifted platinum into a phase of oversupply and downward price trajectory. Until enough production capacity shuts and provides the basis for eventual undersupply, platinum prices are likely to trend lower over the next 18-24 months.
Gold nears cyclical peak as production growth accelerates
In contrast to platinum, gold is in the later stage of its cycle where prices are still rising but considerable new production is coming online. Upstream gold companies are highly profitable at current prices near multi-year highs, incentivizing further capital expenditure to expand production. For instance, gold exploration activity is increasing, more inactive mines are being reopened, and miners are expanding existing operations. While this rise in supply helps stimulate broader economic growth for now, it moves gold closer to an eventual oversupplied state and downward price trend. Therefore, gold is much nearer to a cyclical top than bottom. Investors should consider paring back gold exposure over the next 6-12 months before prices fall more significantly.
Careful cycle analysis critical for timing platinum and gold entries
As purely trading assets, platinum and gold prices are driven predominantly by changes in production capacity relative to demand. By understanding where each metal lies in its unique supply/demand cycle, investors can better time entries and exits to profit. For example, now presents a better buying opportunity for platinum versus gold given platinum’s oversupplied state makes it more likely to bottom soon. Meanwhile gold appears poised for some price weakness as it enters a phase of potential oversupply. Conducting disciplined cycle analysis and identifying inflection points is key to maximizing returns from trading platinum, gold or any metal.
Platinum and gold undergo commodity cycles of changing supply and demand that create secular price trends. Platinum is currently oversupplied so prices may fall further before recovering, while gold nears a cyclical peak making it more vulnerable to a correction. Careful cycle analysis helps time investment entries and exits.