Platinum Price Fails At $1,000…The First Time Up

September 16, 2019

Summary

  • No one said it would be easy for the laggard.
  • Platinum made some strides, but it failed to get to the critical level.
  • Platinum remains the precious bargain.
  • Buying the dip using futures to take delivery.
  • PLTM for those who do not want to hold the metal.
  • Looking for a helping hand in the market? Members of Hecht Commodity Report get exclusive ideas and guidance to navigate any climate.

The price of the active month October platinum futures on the NYMEX division of the CME rose from $793.70 at the end of May to a high at $1000.80 per ounce during the first week of September. Platinum rose to its highest price in 2019, and since early 2018.

While the price of platinum rose by over 26% in a little over three months, the precious metal lagged the price action in gold and silver. Gold rose to its highest price since 2013, and silver made it to a level that it had not traded at since 2016. Meanwhile, two other members of the platinum group, palladium, and rhodium have been in raging bull markets since 2016. The prices of the two other platinum group metals have reached levels that dwarf the price action in the platinum market.

Platinum is a rare precious metal with the highest density and resistance to heat. Over the past years, the value proposition for platinum has been compelling, but the price did not respond as it lagged gold, silver, palladium, and rhodium. While none of the other metals have tested their late 2015 and early 2016 lows, platinum fell to a lower low in 2018.

The recent rally to just over the $1000 level ran into selling sending the price back below $950 per ounce last week. However, signs of bullish life in the platinum market could be a reason to add platinum to your portfolio during the current pullback. The next time platinum probes above the $1000 level, it could blow through the level like a hot knife glides through a stick of butter.

The most direct route for investment in platinum is via the physical market for bars and coins or the futures that trade on the NYMEX division of the CME. The futures allow for physical delivery, which makes them as good as the physical metal. The Granite Shares Platinum Trust product (PLTM) is an ETF that offers exposure to the price of the metal with a value proposition like no other.

No one said it would be easy for the laggard

An investment position in platinum has been frustrating for years. One of the reasons for trepidation from potential investors and risk-takers dates back to the price action over seven months in 2008, the year that the platinum futures market rose to a record high.

Source: CQG

The quarterly chart shows that platinum rose to an all-time peak at $2308.80 per ounce in March 2008 in a rally that began in 2001 and lasted for seven years. By October 2008, the price of the precious metal fell to a low at $761.80 per ounce, a decline of over 67% in a little over half a year, which burned more than a few investors and traders in the platinum market. The fall came during the global financial crisis. The platinum market tends to suffer from less liquidity than gold and silver, which also dropped over the period. Platinum had been a steady bull from 2001 through early 2008, but the price fell off a bearish cliff leaving many market participants with a bad taste in their mouths for the metal. For many, getting badly burned leads to a pledge to never return to the asset that caused the intense pain.

The price of platinum rebounded to just under the $1920 level in 2011, the year that gold rose to its record high. Platinum made a lower high compared to its peak in 2008. At the lows in 2008, gold fell to $681 and silver to $8.40 per ounce when platinum fell to $761.80. Meanwhile, gold has not traded below $1000 since 2009 and nowhere near its 2008 bottom. Silver has not dipped below $10 since 2008. However, platinum fell to $755.70 in August 2018, which was lower than the 2008 bottom and the lowest price for the metal since November 2003.

Gold broke out to the upside in June as the price broke above its July 2016 high at $1377.50 reaching its most recent peak at just under the $1560 level. Silver rose to a peak at over $19.50 per ounce in early September. The move in platinum was not as dramatic, but the price did probe above the $1000 level for the first time since February 2018 earlier this month.

Platinum remains a laggard with lots of baggage when it comes to its role as an investment asset.

Platinum made some strides, but it failed to get to the critical level

Meanwhile, platinum has been quietly setting the stage for what could be a dramatic price recovery over the coming weeks and months. However, the significant technical resistance levels at the 2016-2018 highs stand as price hurdles for the rare precious metal.

Source: CQG

The monthly chart highlights that while platinum rose to $1000.80 recently, the first level of technical resistance stands at the 2018 peak at $1022.60 per ounce. The 2017 high was at$1047.80. The critical level on the upside is at the August 2016 peak at $1199.50. A move above the 2016 high could trigger a significant recovery rally in the platinum futures market.

Technical indicators are looking bullish these days in the platinum futures market. Four months of consecutive gains have caused price momentum and relative strength to rise from oversold territory. Open interest at 97,121 contracts is at a record high. Rising open interest and increasing price is often a technical validation of a bullish trend in a futures market. Monthly historical volatility has risen from under 13% at the end of 2018 to 19.60%, indicating wider price ranges in the platinum market.

Source: CQG

The quarterly chart looks even more bullish when it comes to the prospects for a recovery in platinum. Price momentum has crossed higher and remains in oversold territory, and relative strength is neutral. A move above $1200 per ounce would end the bearish price pattern of lower highs that has been in place since 2011.

The most recent move to the $1000 level failed the first time up, but the metal is making some strides towards price recovery.

Platinum remains the precious bargain

Compared to gold, palladium, and rhodium platinum has been the laggard, and the price remains a compelling bargain.

Source: CQG

At a $540 discount to gold, platinum remains at close to a historic low against the yellow metal. Platinum was once "rich person's gold" but these days that is far from the case.

Source: CQG

Platinum is also at close to a record low against its sister metal palladium at an almost $650 per ounce discount. Last week, the price of palladium traded to another in a long series of new record highs at over $1600 per ounce. In 2008, platinum was at an over $1600 per ounce premium to palladium and an over $1140 premium to gold.

Rhodium is a byproduct of platinum. In early 2016 when platinum fell to just above the $760 level, the price was at a $160 premium to rhodium. Weakness in the platinum market caused South African producers to cut higher priced output, which resulted in a shortage in the thinly traded physical rhodium market and the price soared.

Source: Kitco

As the chart shows, the price of rhodium rallied from under $600 in early 2016 to a midpoint value at $4900 per ounce on September 13. The $160 premium for platinum in early 2016 today stands at an almost $4000 per ounce discount.

Platinum is a financial metal, so it can compete with gold when it comes to its value proposition. Platinum is an industrial metal with higher density and resistance to heat compared with both palladium and rhodium, so it can serve as a substitute when it comes to industrial applications. Therefore, a significant and perhaps dramatic price recovery in the platinum market is long overdue.

Buying the dip using futures to take delivery

Purchasing bars and coins from dealers around the world is the most direct route for investment in the platinum market. However, the rarity of the metal often caused dealers to charge high premiums to the spot price of the metal for the physical.

One way to avoid some of the premiums is to buy platinum contracts on the NYMEX division of the CME and stand for delivery. Each contract represents 50 ounces of the metal. At $955 per ounce, the total contract value is $47,750. While there are exchange and storage costs involved in taking delivery of a NYMEX platinum contract, they are likely to be lower on a per ounce basis compared to the premiums charged by dealers around the world.

PLTM for those who do not want to hold the metal

Another investment option in the platinum market is the Granite Shares Platinum Trust product, which carries the lowest expense ratio. While the PPLT ETF charges 0.60%, PLTM charges 0.50%. PPLT reflects the price action of one-tenth of an ounce of the metal, while PLTM is one-tenth the size of PPLT and reflect the price action of 1/100 of an ounce of the metal.

The Granite Shares product invests 100% of its net assets in physical platinum bullion. PLTM's fund summary states:

The investment seeks to reflect, at any given time, the value of the assets owned by the Trust at that time less the Trusts accrued expenses and liabilities as of that time. The Shares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in platinum. An investment in allocated physical platinum bullion requires expensive and sometimes complicated arrangements in connection with the assay, transportation and warehousing of the metal. It is non-diversified.

The price of platinum rose from $835.20 on the NYMEX October futures contract on August 16 to a high at $1000.80 on September 5, a rise of 19.8%.

Source: Barchart

Over around the same period, PLTM moved from $8.28 to $9.87 per share or 19.2% as it tracked the price of the October futures. PPLT is still building liquidity and has $5.59 million in net assets with just under 19,500 shares changing hands each day.

Platinum failed at the $1000 per ounce level the first time up. The compelling value proposition for the metal and the price action in the other precious metals could mean that platinum's overdue recovery could be on the horizon sooner rather than later.

The Hecht Commodity Report is one of the most comprehensive commodities reports available today from the #2 ranked author in both commodities and precious metals. My weekly report covers the market movements of 20 different commodities and provides bullish, bearish and neutral calls; directional trading recommendations, and actionable ideas for traders. I just reworked the report to make it very actionable!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

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Andy Hecht

Andy Hecht covers Commodities and Forex as one of the original contributing analysts at FATRADER.com. A former senior trader at one of the world’s leading commodities trading houses, Philipp Brothers (now part of Citigroup), Andy has worked and consulted for banks, hedge funds, and commodities producers and consumers around the world for over 35 years.

The Incas thought gold represented the glory of their sun god and referred to the precious metal as “Tears of the Sun.”

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