UBS Prefers Gold Over Platinum for Q4 Amid Growing Supply Glut

UBS strategists are recommending gold over platinum for investors heading into the fourth quarter, pointing to weakening fundamentals and a second consecutive quarterly surplus for the industrial metal.

Platinum Market Oversupplied

In a recent note to clients, UBS strategist Giovanni Staunovo highlighted that the platinum market was oversupplied again in the second quarter. "Weak investment and jewelry demand suggests that the platinum market will remain oversupplied this year," Staunovo wrote. "Given platinum's weaker fundamentals, we currently prefer exposure to gold over the white metal."

Data from the World Platinum Investment Council (WPIC) underpins this view. The WPIC estimated a market surplus of 244,000 ounces in the second quarter, equivalent to 15% of global demand. The council also revised its first-quarter surplus higher to 304,000 ounces. For the full year, the WPIC now forecasts a surplus of 265,000 ounces, a significant reversal from a previously expected deficit.

Demand Weakens as Supply Recovers

The supply-demand imbalance stems from both recovering production and faltering consumption. According to UBS, the surplus reflects:

Ad

• Recovering Supply: Mine output in South Africa and Zimbabwe is rebounding from last year's flooding, and scrap volumes are higher.
• Softer Demand: Chinese jewelry demand has weakened, while autocatalyst demand has fallen as the adoption of electric vehicles reduces the production of internal combustion engines.
• Weak Investment: Bar and coin purchases have declined, and exchange-traded funds (ETFs) have experienced outflows.

The only bright spot identified was industrial demand from the glass sector. Staunovo also noted that with platinum once again more expensive than palladium, automakers may revert to using palladium in catalysts for new vehicle models, further pressuring platinum demand.

Market Outlook

While rising gold prices have provided some support to platinum due to a strong correlation between the two metals, UBS's forecast suggests a challenging period ahead for the white metal. The bank anticipates modest downside from current price levels in the near term, followed by a broadly sideways market over the next 12 months.