A Momentum Lead Capitulation in Platinum, A Major Triple Bottom Develops?

3rd July 2018 - D Mitchell

Platinum has recently seen a dramatic fall in price. In just over two weeks from 1st June 2018 the noble metal has crashed from $910 to a low today of $798.50,  a near 12.25% fall - what could be causing this overwhelming rout?

The common themes highlighted in the financial press are as follows:

• Platinum markets fell this week as global fears continued about trade disputes, economics slowdowns and rising interesting rates, all of which could help demand - In fact we are seeing global demand for vehicles and strong demand in the PGM's (platinum group metals) where Palladium, Rhodium and Ruthenium are all holding higher prices.

• Almost 40% of Platinum's demand comes from the automotive industry, where is it used in catalytic converters, especially in diesel vehicles. However, demand for diesel vehicles has collapsed worldwide following the Volkswagen emission scandal of 2015, when it was revealed that many diesel vehicles polluted far more than advertised - Again this is not strictly correct as major developments by the car manufacturers to improve lower emissions via catalytic loading of higher Rhodium and Platinum content, hence the huge rally in Rhodium over the last 18 months.

• Gasoline-powered vehicles usually use chemically similar, albeit far inferior, Palladium instead of Platinum, as Palladium was historically far cheaper than Platinum - anywhere from 1/2 to 1/5 of the cost - Now, as the Platinum price has collapses, Palladium is worth $120 more than platinum, setting up a highly likely market reversal for a huge increase in platinum demand in the face of Euro 6 compliant catalysts (required from September 2015) which has to use more Platinum per car to achieve the lower emissions requirements. Selective Catalytic Reduction 9SCR) systems also contain Platinum.

The more likely excuse for the fall in Platinum has been momentum trading on the paper exchanges in the face of a higher USD on the FX markets, coupled with falls in the South African Rand and weak base metal prices.

In the long erm, cheap prices will likely cause industrial users to use more Platinum, but the market is stuck in a 'sweet spot' of malaise for now, creating an interesting opportunity for the patient investor.

Historically, Platinum has been valued higher than Gold, but now is over $400 per oz cheaper, meaning that the Platinum-Gold ratio has now hit the most oversold picture ever recorded.

Technical Triple Bottom buying Opportunity?

We need to confirm patterns by breaking back through the $920 per oz trend line, but also and more more importantly we need to break the high of $1,200 which was the high proceeding major low to confirm we are indeed correct.

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