Commodities

Platinum – at a crossroads

Platinum has reached an important point in its somewhat haphazard trajectory.

The serial under-performer of the precious metals world has been climbing in price for the last two months. It now remains to be seen if that momentum can be sustained. 2020 dealt Platinum a bitter blow: Covid-19 struck during a downturn in the market, and the combined effect was severe. True, most assets were affected by the virus (or rather by shockingly poor government reactions to the virus), but it still factors into the equation.

The latest price surge is a particularly strong one: Platinum seldom climbs for several consecutive days. Right now we are on the sixth day of positive price momentum. While not unprecedented, this is rare – on average it occurs approximately once per quarter.

As a hybrid metal with one foot in the industrials market in the other in the precious metals one, I find Platinum trends particularly difficult to call. They tend to being exceptionally long-term, which is what makes watershed moments such as this one so important.

If Platinum can break out now – and that would be signalled by a sustained price in excess of $1150 – then it may finally start to head back to its normal position of being above Gold in price. The Gold/Platinum ratio is 1:0.57 whereas the norm is between 1:1 and 1:2.

Platinum could thus be considered to be highly oversold, and one would expect it to recover in price. Fundamentally this makes sense because…

Demand for Platinum

While industrial demand remains subdued due to reduced global economic activity, this should not greatly affect Platinum. Starting just over a decade ago ago, Palladium went a long way towards replacing Platinum in industrial applications, specifically in the automotive industry (where they are used in catalytic converters). This reduced demand for Platinum, but caused a substantial rise in the price of Palladium. To a lesser degree and more recently, Palladium has also started to become sought after as a precious metal.

The Palladium price is now 2.21 times that of Platinum, close to the All Time High of just over 3 times, achieved in February of 2020. It is conceivable that manufactures will seek to cut costs by once again reverting to using Platinum over Palladium. Even if they do not, with Platinum used far less extensively than it was a decade ago (at least in relative terms), reduced economic activity will have significantly less impact on its price than it would have had in the mid-2000s. I don’t have a licence-free Platinum/Palladium ratio-chart to use, so visit https://www.bullionbypost.com/price-ratio/palladium/platinum/alltime/ if you want to look at theirs.

That brings us to the other major use of Platinum: as a precious metal. Like Silver, Platinum is used as a secondary store-of-value precious metal (Gold obviously being the primary). Like Silver, it is more speculative than Gold, but compensates for that by offering higher potential ROI. The USD price of Gold climbed by 24% in 2020. The USD price of Platinum did not even climb by half of that amount. Having lost further ground to Gold in 2020, and being close to its All Time Low (which occurred eight months ago), it would be very surprising if investors did not realise the “discounted” value of Platinum and add it to their portfolios accordingly.

As an amateur precious metals investor myself, I’m bullish on Platinum. While I hold hardly any of the physical metal, the majority of my shares portfolio is in Platinum companies. I have often contemplated selling my shares and exiting the stock market entirely (placing that money into cryptocurrencies instead). The only thing which has prevented me from doing so is that my shares portfolio is 99% in precious metals, and is therefore fairly immune to the baseless share valuations which underpin the value of most other fiat-based stocks. In simple terms: the value of my shares is backed by reserves of precious metals; most other shares are chiefly backed by ethereal “assets”.

The other way

Of course my above analysis points to a price rise for Platinum. This in turn points to the afore-mentioned breakout and a very bullish 2021 and beyond. But one should never make the mistake of assuming that investors are rational: a few are, but most behave as a manipulable herd.

Thus the price of Platinum may well fall now. If it does, then we can expect it to drop to a low of $850 before climbing once again.

Long-term TA

The long-term TA is firmly on the side of a price climb. At least that’s how I interpret the charts:

Platinum broke out of an 11-year converging triangle in late 2019, in a positive direction (indicated in white on the chart below). The subsequent natural price retracement combined with the Covid-19 price crash caused it to fall back into that triangle; which it then broke out of again in Q2 of 2020. Since then the price has remained nett positive. Even if Platinum were to fall back to a price of $850, it would still remain well clear of the converging triangle.


With the current Platinum price channel being only mildly positive, and with Platinum being critically undervalued relative to Gold and Palladium, TA absolutely allows for a much steeper price climb, with historical precedent indicating that such a climb could be sustained for several years.

Conclusion

Common sense and my analysis of the data tells me that Platinum will break out and climb in price. Experience in this volatile and notoriously unpredictable market tells me that I may be wrong about that price climb. Therefore my probability prediction looks as follows:

  • Platinum breaks out and climbs in price: – 60%
  • Platinum hits resistance and drops to $850: – 25%
  • Platinum does something else: – 15%

P.S. Happy New Year!

Yours in crypto

Bit Brain

All charts made by Bit Brain with TradingView

“The secret to success: find out where people are going and get there first” 

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