BofA's PGM Forecasts: Assessing the Structural vs. Cyclical Drivers of the 2026 Rally

Bank of America's bullish case for platinum and palladium is built on a foundation of persistent structural deficits. The bank has raised its 2026 average price forecasts to $2,450 an ounce for platinum and $1,725 an ounce for palladium, up significantly from prior estimates. The core rationale is straightforward: ongoing supply constraints, particularly from South Africa, combined with robust industrial demand, are creating a fundamental imbalance that the bank expects to persist. This thesis is reinforced by geopolitical dynamics, with the U.S. becoming a sink for inventories and potential tariffs on Russian supplies adding further upward pressure.

Yet the current market reality as of January 9, 2026, presents a clear divergence from this forward-looking optimism. Both metals trade below their respective BofA targets. Platinum futures are hovering around $2,270 per ounce, while palladium sits near $1,880 an ounce. This gap highlights a critical tension: the explosive rally that has seen platinum up over 130% year-to-date and palladium up nearly 100% is being driven by powerful macro forces that are not unique to the platinum group metals (PGMs).

The recent price action has been supported by a surge in safe-haven demand from geopolitical tensions like the U.S. intervention in Venezuela, alongside expectations of further Federal Reserve rate cuts. These factors have provided broad-based support for precious metals, creating a vulnerable setup. The rally's dependence on these transient macro catalysts means it is exposed to a sharp reversal if geopolitical risks ease or if the Fed's policy path diverges from market pricing. In other words, the market is pricing in a powerful cyclical tailwind that could quickly fade, even as BofA's forecast hinges on a more durable structural deficit.

Structural Deficits: The Core Support for Platinum

For platinum, the bullish case rests on a clear structural imbalance: a supply that is forecast to contract, meeting demand that remains stubbornly resilient. The core of this deficit is a projected 6.4% decline in African PGM production in 2025, a drop driven primarily by operational headwinds in South Africa, which produces over 80% of the world's platinum group metals. This isn't a minor blip; it's a fundamental tightening of the physical supply chain that provides a long-term floor for prices. While production is expected to resume growth after 2025, the near-term squeeze creates a tangible deficit that BofA's forecast hinges upon.

This supply constraint is amplified by a unique dynamic in the U.S. market, where the country has become a sink for PGM inventories. The surge in CME inventories and the spike in exchange-for-physical trades (EFPs) for palladium, driven by fears of potential tariffs on Russian supplies, highlight how U.S. policy risks are actively pulling metal into storage. For platinum, this same mechanism-coupled with strong Chinese demand-means that physical supply is being absorbed, not just priced in. The bank notes that record gold prices raise the possibility of substitution that could widen the platinum deficit, adding another layer of structural support.

Adding to this physical tightness are new financial instruments designed to facilitate physical delivery. The launch of new physically backed platinum and palladium futures contracts by the Guangzhou Futures Exchange has provided further price support, with physical sourcing cited as a key factor behind recent rallies. This development deepens the market's connection to the physical metal, making it harder for prices to decouple from the underlying supply-demand reality. For platinum, these factors combine to create a multi-pronged structural support system: a constrained African supply, a U.S. market acting as a physical sink, and new financial channels that reinforce physical demand. This setup is the bedrock of BofA's long-term price forecast, separating it from the more cyclical, macro-driven moves that have powered palladium's recent surge.

Cyclical Headwinds and Sentiment Risks

While platinum's outlook is anchored in structural supply deficits, palladium's recent explosive rally is more clearly cyclical, making it vulnerable to a reversal. The metal has surged nearly 100% year-to-date, but this move has been heavily reliant on macro catalysts that are not unique to PGMs. The rally was sparked by heightened safe-haven demand following US intervention in Venezuela and expectations of aggressive Federal Reserve easing, with markets pricing in two rate cuts this year despite the Fed's projection of only one. These broad-based forces have provided powerful, but transient, support.

The key risk for palladium lies in the very mechanism that has fueled its price: exchange inventory flows. The metal has seen a surge in CME inventories, driven by fears of potential tariffs on Russian supplies. This dynamic has acted as a physical sink, absorbing metal and tightening the visible deficit. However, this is a speculative positioning that can reverse quickly. If geopolitical tensions ease or if the tariff threat recedes, these inflows could reverse by year-end, materially altering the deficit picture and pressuring prices. The market is currently pricing in a slight deficit for 2026, but the World Platinum Investment Council (WPIC) projected the market could move from a slight deficit to a modest surplus in that year, highlighting the fragility of the current bullish narrative.

This sets up a clear divergence. For platinum, the structural support from a constrained African supply chain provides a longer-term floor. For palladium, the path is more dependent on sentiment and positioning. The recent retreat from a one-week high as traders digested mixed economic data underscores this vulnerability. The metal's performance is now being tested against a backdrop of a resilient US labor market and a Fed that is widely expected to hold rates. If the macro tailwinds that lifted palladium fade, the rally's foundation would be exposed.

Catalysts and Risks: Policy, Production, and Sentiment

The path for platinum and palladium in 2026 will be determined by a series of forward-looking events that will test the durability of their respective structural supports against powerful cyclical forces. Three key areas will be decisive: the resolution of U.S. trade policy, the trajectory of South African production, and the resilience of market sentiment.

First, the U.S. antidumping petitions against Russian palladium are a major policy catalyst with a dual-edged outcome. The filings, which allege Russian palladium is sold below market prices, have already triggered a preliminary finding of material injury. If duties are imposed, they would fall on importers and likely cut Russian exports to the U.S., a market where Russia supplied 40% of imports in 2024. On the surface, this would tighten supply and support prices. However, the mechanism is complex. The U.S. has seen a decline in domestic mining supply of 27% and recycling supply of 30% over the past three years, creating a dependency that any trade disruption would exacerbate. The market's muted initial response to the filings, followed by a 25% price acceleration, suggests the trade tension itself is a more potent near-term driver than the final outcome. The real risk is that the policy debate fuels volatility and could trigger broader trade tensions, overshadowing the fundamental supply-demand story.

Second, for platinum, the critical variable is the evolution of South African production and the policy environment for internal combustion engines. The bank's bullish case assumes a projected 6.4% decline in African PGM production in 2025 will persist, but the market will be watching for any policy rollbacks on aggressive electric vehicle mandates. Olive Resource Capital's outlook explicitly factors in anticipated rollbacks of aggressive electric vehicle mandates as a key driver to sustain autocatalyst demand for platinum. Any reversal in these policies would directly threaten the industrial demand pillar of the structural deficit. Conversely, a stabilization or recovery in South African output, perhaps aided by new investment or labor agreements, could alleviate supply fears and cap the upside. The production trend is the physical anchor that will either validate or undermine the bullish thesis.

Finally, the primary near-term risk for both metals is a sharp reversal in sentiment and positioning. The recent price action for platinum is a clear warning. After a 132.54% surge year-to-date, the metal fell back toward $2,270 per ounce as investors took profits amid a broader metals market selloff. This pattern underscores the vulnerability of a rally built on macro catalysts like geopolitical risk and Fed rate cut expectations. When the initial euphoria fades, the market reverts to evaluating fundamentals. For palladium, the risk is amplified by its reliance on speculative inventory flows. If the tariff threat eases or the geopolitical backdrop cools, the recent inflows into CME inventories could reverse, quickly altering the deficit picture. The bottom line is that structural support provides a floor, but cyclical forces dictate the pace and volatility of the climb.