NEW YORK (TheStreet) -- Platinum prices may be forming a bottom as the global economic recovery increases demand for the metal. Prices remain low but show potential to take off in the new year.
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Platinum, which is used in industrial settings to reduce pollution, is currently running its largest demand deficit since 2009. The gap between demand and supply has widened as economies across the world begin seeing growth accelerate.
Unlike other precious metals, such as gold, platinum prices are helped by stronger economies. Speculators have begun to notice the deficit, which could attract buyers.
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The Federal Reserve stimulus taper announcement last week looked negative for metals, but it also signaled the central bank's growing belief in the recovery. Inflation remains low, which has capped the upside move in treasury rates since the taper, but improved commodity demand could drive inflation past its 2% threshold.
The chart below shows the price action of ETFS Physical Platinum Shares (PPLT) over the past year. The uncertainty over U.S. monetary policy in May spurred a selloff to yearly lows. For the remainder of 2013 the prices have oscillated within a wide range.
Platinum has not yet begun to ascend, but the widening deficit and improved economic outlook should correct this. If prices spike higher in 2014, it could ignite a pickup of global inflation. That in turn would cause central banks to more closely monitor their aggressive monetary stimulus policies.
At the time of publication the author had no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.