China is expected to dramatically ease restrictions on automobile purchases to help boost domestic consumption.
This includes new measures that will relax or lift restrictions and support the purchase of new cars, according to a new guideline that outlined 20 steps to spur economic growth issued by the State Council of the People's Republic of China.
The State Council said in a statement that local governments across 23 provinces should consider relaxing or removing restrictions on vehicle purchases and encourage purchases of new energy vehicles.
As a result, global auto stocks have stabilized this week on the news that Beijing is expected to loosen restrictions.
More importantly, platinum is up 10% in 68 trading hours on hopes China's domestic automobile industry can be revived.
Platinum is used in making catalytic converters, which all modern automobiles are equipped with these devices that reduce emissions of harmful compounds found in car exhaust, including Carbon monoxide (a poisonous gas) and Nitrogen oxides (a cause of smog and acid rain).
On average, 3 to 7 grams of platinum is used in making a standard catalytic converter, but the amount varies on manufacturer and model.
Platinum has tumbled 60% in 46 quarters thanks to weaker demand and excess supply, whereas gold and silver have been accumulated in droves as per a hedge against a dovish Federal Reserve.
Trading at 2008 lows, platinum has been trying to base in the 1,000 to 750 level for 43 months.
Among the contributing factors mentioned above of why platinum prices are rising, it could be soon considered a catch-up trade to gold and silver, which have exploded over the course of this year thanks to dovish tilts by global central banks, an escalating trade war between the US and China, and macroeconomic risks pertaining to a worldwide synchronized slowdown.
The State Council is attempting to boost China's domestic economy to weather an economic storm that started before the trade war but has undoubtedly been accelerated by trade disputes. It's likely that a trade deal between the US and China isn't expected until after 2020, that's why China is implementing new measures to stimulate its economy.
Overall car sales in the country have declined for the 13th consecutive month in July. The government is hoping to trough the industry with the easing of restrictions.
Beijing is expected to roll out further stimulus measures to help boost its economy in the quarters ahead.
"China data weakness will likely be more visible in August and September, and policymakers will likely lean towards more intensive easing," analysts at the Bank of America Merrill Lynch said in a note. "We expect policy loosening to resume in infrastructure investment, consumption stimulus, and monetary easing."
Hard to say if platinum will erupt further, but it's one precious metal that's still trading on 2008 lows — something to watch for sure.