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It may not be mentioned by investors as frequently as gold or silver, but platinum has proven to be a strong long-term investment. That's why we're going to share Money Morning Resource Specialist Peter Krauth's 2017 platinum price prediction today, which sees the metal rising 38.6% by the end of the year.
You see, platinum prices are up 3.1% to $938 per ounce over the last three months. That's better than gold's 3% rally, and it crushes silver's 0.3% loss over the same period. Platinum has also outperformed popular metals ETFs like the iShares Silver Trust ETF (NYSE Arca: SLV), which is only up 0.2% since December 2016.
Krauth - a 20-year veteran of the platinum, gold, and silver markets - says the price of platinum could rally another 38.6% this year, besting his 16.4% gold price prediction and 29.4% silver price prediction. And there are two important factors that will fuel platinum's double-digit return.
Before we get to his exact platinum price target, here's why Krauth is so bullish on the precious metal in 2017...
Why Platinum Is One of the Best Precious Metals to Buy in 2017
The most important thing to know about platinum is it's one of the world's rarest precious metals. In fact, it's much rarer than silver, gold, and copper.
Like those other three metals, platinum can be bought and sold via futures contracts on the New York Mercantile Exchange (NYMEX). There's a simple reason platinum is so expensive - far less of it is mined from the ground each year. That's because it's incredibly difficult to extract, which typically lifts operating costs and makes mining for the metal unprofitable for companies that can't handle the overhead.
According to Statista, the combined output of the top five platinum-producing nations - South Africa, Russia, Zimbabwe, Canada, and the United States, which make up 98% of global platinum production - was 168.9 metric tons last year. The 2016 global gold output of 3,100 metric tons dwarfs that platinum output.
Another crucial factor that determines the platinum price is its correlation to the U.S. dollar - similar to gold and silver.
Like gold and silver, the price of platinum typically has an inverse relationship to the dollar. Since platinum is a dollar-priced commodity, it increases in value when the dollar weakens and vice versa. That's because platinum becomes cheaper for users of other currencies.
But there are two bigger factors that will have a major bullish impact on platinum prices in 2017. In fact, it was these two factors that caused Krauth to release his extremely bullish platinum price prediction for 2017.
Here's why the platinum price will climb 38.6% to our price target this year...
2 Reasons Why Our 2017 Platinum Price Prediction Shows a 38.6% Rally
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According to Krauth, platinum prices will rise 38.4% to $1,300 an ounce by the end of 2017.
The first reason why the platinum price will head higher is because the gold price will rally. Because gold is the most popular metal in terms of trading volume, it serves as somewhat of a barometer for the entire precious metals market.
Basically, strong gold demand often results in strong demand for other metals like platinum and silver.
"I think gold will reach $1,400 later this year, and that should help platinum play 'catch up' and work its way higher to $1,300," Krauth told me on March 8. "And that's a lot higher than today."
But the second and even more important reason why platinum will reach $1,300 is because it plays a big role in the booming auto industry.
You see, roughly 43% of all consumed platinum is used in catalytic converters. These are the devices inside cars that convert dangerous pollutants from exhaust gas into less toxic emissions. For the last 42 years, the U.S. Environmental Protection Agency (EPA) has required gasoline-dependent automobiles, such as cars and buses, to have catalytic converters.
That makes the auto industry the largest industrial source of platinum demand. It even surpasses the jewelry market, which Krauth says uses 35% of all consumed platinum.
And demand will strengthen this year as auto sales in Western Europe gradually increase...
According to IHS Markit, total 2017 auto sales in Western Europe - which include the United Kingdom and France - are expected to rise by 1%. That would be up from about 14 million sales last year.
Keep in mind that this is a conservative projection. Analysts are currently unsure of how events like the Brexit and elections in France and Germany will affect consumer spending.
Despite those geopolitical events, auto sales should still rise this year. If sales surpass current expectations, platinum prices could surge 38.4% to $1,300 thanks to the metal's increased industrial demand.
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Alex McGuire writes for Money Morning. Follow him on Twitter for more 2017 platinum price coverage.
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