Platinum Price Backs Off
London (Sept 22) It was a hot summer in the precious metals sector of the commodities market as the prices of all four of the metals were on fire. Hold broke out to the upside in June after the US Fed told markets to expect interest rate cuts before the end of the year. Gold broke through its critical level of technical resistance at the July 2016 highs. The price rose to just shy of the $1560 in early September, the highest level since 2013. Lower interest rates were a factor in the ascent of the gold price. However, uncertainties over trade between the US and China, Brexit, and Iran all created a potent bullish cocktail for the yellow metal.
Silver did not climb above its 2016 peak but still managed to do yeoman's work on the upside. The price of the volatile precious metal rose from under $15 per ounce to a high at $19.75 on the active month December futures contract at the start of this month. Meanwhile, palladium recently made a new high at above $1600 per ounce and rhodium, a byproduct of platinum output, probed above the $5000 per ounce level.
Even platinum got into the act, climbing to a peak at just over the $1000 level for the first time since early 2018. The summer months were a precious metals bonanza, but the bullish fires have receded over the past weeks. The prices of all four of the metals have been correcting.
Markets rarely move in a straight line. Even the most aggressive bull markets suffer setbacks and corrections.
Platinum continues to offer the most compelling value proposition in the precious metals sector. The Granite Shares Platinum Trust product (PLTM) reflects the price action on 1/100 of an ounce of the metal. The ETF holds physical platinum metal with 100% of its net assets.
A failure at $1000 the first time up
In 2018, the price of platinum fell to its lowest level since 2003 when it traded to $755.70. In 2019, the low was at $780.90 per ounce.
The magnetic impact of rallies in gold, silver, palladium, and the rhodium markets lifted the price of platinum throughout the summer, and the price reached a peak at the start of September.
As the monthly chart highlights, platinum has been in a bear market making lower highs since 2011 when the price stopped just short of the $1200 level. To break the pattern of lower peaks on the longer-term chart, the first level of technical resistance stands at the early 2018 high at $1022.60 per ounce. During the first week of September, nearby NYMEX platinum futures made it up to a high at $1000.80 per ounce before the market ran out of buying and turned lower. Even though the price had pulled back to the $942 level as of September 20, price momentum and relative strength metrics were both trending higher in a sign that a recovery could be in its early stages.
The price action in platinum shows that the first attempt to move above the $1000 level. However, the precious metal has followed some of the other members of the sector lower over the recent weeks.
Gold and silver correct
Platinum may have many industrial applications, but it still tends to attract investors who look to the metal as a store of value and financial asset. Since reaching highs in early September, the prices of gold and silver moved lower, which likely weighed on the price of platinum
The weekly chart of COMEX gold futures shows that after a prolonged rally that took the price from $1266 in April to a high at $1559.80 earlier this month, the yellow metal had pulled back to the $1507 level as of Friday, September 20.
Meanwhile, the price of silver moved from $14.245 in late May to a high at $19.54 in early September and pulled back to the $17.75 level as of the end of last week.
Gold had risen to the highest price since 2013, and silver to its highest level since 2016. Platinum made a new high for 2019, but ever the laggard, the price could not make it above the 2018 high on its first attempt to challenge technical resistance.
Palladium and rhodium remain strong
Meanwhile, the wild bull markets in the palladium and rhodium markets that began in 2016 continue to defy gravity. Palladium and platinum can be interchangeable when it comes to industrial applications. The relative price performance of the two metals continues to be supportive of an eventual significant recovery in the price of platinum.
The weekly chart of NYMEX palladium futures shows that the price has steadily climbed. The rally began back in early 2016 at $451.50 per ounce. Last week, palladium rose to yet another all-time high at $1639.70 per ounce on the continuous futures contract.
Rhodium is a byproduct of South African platinum production. The depressed prices of platinum over the past years has caused some platinum mines to close off higher-cost output leading to a shortage of rhodium. The price action in the metal has been nothing short of explosive.
The chart shows that the price of rhodium moved from a low in 2016 at $575 to a midpoint value at $5200 per ounce late last week. The price action in the other platinum group metals is highly supportive of the future price prospects for the namesake metal.
The GM strike weighs on PGMs
Platinum and palladium clean toxins from the air in automobile catalytic converters. Last week, workers at General Motors went on strike. The management of the company and leadership of the United Auto Workers union continue to negotiate over a new contract. Nearly 50,000 workers at GM plants across the US are involved in the strike. The company could lose $250 million each day in what is the first nationwide strike by the UAW since 2007. As of late last week, union workers shut down 33 manufacturing plants in nine states as well as 22 parts distribution warehouses. The workers are demanding fair wages, affordable healthcare, a share of profits, job security, and a defined path to permanent seniority for temporary employees.
The labor action could go on for a while, and that could weigh on demand for platinum group metals that are requirements for catalytic converters. Therefore, the risk of lower demand over the coming weeks and perhaps months is a danger for platinum group metals prices. Since platinum has been the weakest, it could be most vulnerable to setbacks.
Buying the dip with PLTM
Platinum is a denser metal than palladium and rhodium, and it has the highest resistance to heat than both the of other platinum group metals. Platinum also serves as a financial asset and a store of value with some similar qualities to gold and silver.
I continue to believe that platinum offers the most compelling value proposition of all of the precious metals at its current price level. From a technical perspective, platinum will need to conquer the 2018 high at $1022.60 per ounce and rise above the 2016 high at $1199.50 to get things going on the upside for the metal. I favor buying dips in the platinum market using physical bars and coins, futures on NYMEX, or platinum ETF products. The Granite Shares Platinum Trust product replicates the price action in the platinum market.
SeekingAlpha
