Platinum
Daan Joubert
One could almost call it the forgotten precious metal. Gold generally spends most of the time in the limelight, with silver now starting to turn it into a duo, sidling up next to gold to share the news spotlight - at least what some media consider to be news. The precious metals do not warrant much attention from the main stream media that is more concerned with the new economic boom just ahead and how far the Dow can run when economic growth really kicks in.
Why pay attention to a market that competes for investors' money with Wall Street, where all the popular action is, except when the metals take a beating and it can be pointed out to the masses that their money is much safer in equities than to fiddle around with some barbaric relic.
Yet even where much gets written about gold and nowadays almost as much about silver, platinum rarely draws a lot of attention. Some of the reasons could be
- There is not nearly as much platinum around than silver or gold and most of what is available lies in the stockpiles of vehicle manufacturers for use in catalytic converters
- Platinum mines are situated in what many investors consider to be the less reputable parts of the investment world, mainly southern Africa and in Russia. As a result, these mines do not attract much attention from newsletter writers or other media that ply the mass markets
- There is little platinum freely available above ground and thus the white metal is not a good candidate for shorting - as some major player in the bullion markets is reputed to have discovered some time ago - nor is it suitable for large scale investing, though it is popular among small investors in Asia
The question of course is how one would have performed as an investor in platinum.
Then one examines the relative performance of the three metals over say the past 5 years, it is clear that gold consistently outperformed silver right up to mid-December last year. From 1998 to 2000 neither of the two metals did well; that was when gold sat firmly in the sights of the central banks, which leased the metal for sale in the open market at rates that reflected gold's role as super-money, but without including any risk premium for the catastrophe that now seems inevitable.
Yet, despite the steep decline in the price of gold, silver fared even more poorly during this period. The reason now comes as surprise for many people, despite all that Ted Butler has written about the silver metal, namely that by comparison to available above ground supply there is an even larger short position in silver than in gold - discussed in some of the recent essays.
It is only since December that the silver price broke loose and started to outperform the gold price.
So if gold had the better of silver over most of the past 5 years, how does it shape up against platinum?
It turns out to have been 'No contest' for almost 10 years. Except for a period of about 2 years between 1997 and 1999, when gold just managed to hold its own, and again for 6 months during 2001 - when gold started off on its bull trend at the time when platinum plunged because motor manufacturers were de-stockpiling - platinum did far better than gold since at least 1996.
From the end of 1994 to the present, the price of platinum has more than doubled, rising 107%. During this period the price of gold gained just about 7%.. So it really is no contest over say the past 9 years. Let's consider only the gains since March 2001, when this still struggling yet quite magnificent gold bull market kicked off. Since then gold has gained almost 60%.
Over the same time period - end of March 2001 to the present - platinum managed a gain of 53%. So clearly gold is now catching up to platinum, albeit slowly.
Yet the situation is not so simple. From August 1999 to January 2001 the price of platinum gained more than 80% as motor manufacturers scrambled to build stockpiles of platinum and palladium in expectation of the steeply rising sales curves for their products. By end March - the reference date - the price of platinum was still near its highs. Then, later in 2001 a very steep bear market in the white metal developed when it was realised that the vehicle sales curves were no longer streaking skywards at an accelerating pace and that far too much platinum had been stockpiled, leading to a rapid sell-off.
The low in the price of platinum was reached quite soon, in October 2001, after which platinum did some streaking skywards of its own to post a 106% gain in just over two years, leaving gold way behind in its dust.
The near future
This is history. What can one expect of the future.
The best fit support line of the platinum bull market currently has a value of just $750/oz - way below the ruling price in the vicinity of $850/oz A large gap like that between the ruling price and the supporting trend line, or to a moving average, can be interpreted in two ways. The first is that the price gas run too far too fats and is due to correct back to the trending mean.
The second is that the trend - bullish in this case - is still accelerating.
A belief that the price has to correct back to its trending mean is the usual response when the gap between the price and, usually, a medium term moving average, grows too large. Experience has shown that prices move in waves and that a period of steep increases or declines is followed by a consolidation or even a correction that closes the gap again. The kind of picture presented by the platinum price, one of an almost unbroken rising trend, is quite rare and analysts who inform the investing public that this is the 'mother of all bull markets' generally become a little shy about their forecasts not long after making them.
Yet the question should be asked - is platinum showing us how a precious metal should be behaving in the current global financial climate in the absence of external interference; interference that is based on pure greed and selfish objectives, exploiting (what used to be) a cheap and readily available above ground supply of the metal? With little regard for what this meddling does to other players in these markets.
The medium term future
For now the platinum bull market seems intact. Investors in gold and silver who wish to diversify have very few alternatives, except into mines that produce these two metals in different mixes and on different continents. Yet platinum, both as metal and in terms of its producers, offer a third alternative for those with portfolios that are top-heavy in gold an platinum. Too risky? For many US and European investors the answer is 'Yes'. Yet keep in mind that as a rule risk and reward goes hand in hand. Which, for example, is why the gold and silver juniors can be expected to perform better than large established mines in the coming 'real' bull market.
Do not forget, however, that gold an silver have a good deal of catching up to do. When they begin to do so they will have some assistance that platinum has never had - all the shorts who have to do their best to cover their positions in a raging bull market. In aircraft terms that is something that could be called an 'afterburner'.
It will be most impressive.
12 February 2004
© February 2004 Daan Joubert
All rights reserved to author and www.GOLDSignals.com
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