Commodities/Forex

Andy Hecht

Top 3 Ranking in Commodities, Metals & FX --SeekingAlpha

A Victory Lap On Platinum- More Upside Ahead For The Precious Metal

  • Platinum was looking sexy in late February
  • Precious metals corrected
  • The performance in PPLT
  • Risk rises with price, but platinum could still have lots of upside compared to the prices of gold and palladium

The price of platinum has been in a bear market since the metal hit an all-time high at $2308.80 in March 2008. Following the devastating effects of the global financial crisis that year, the price of the metal fell to a low at $761.80 per ounce in December of that same year which was a decline of 67%.

The price of platinum worked its way back to $1918.50 in 2011 when gold and silver prices peaked, but since then it has been all downhill for the price of the rare precious metal as it made lower highs and lower lows. In August 2018, the price of platinum fell to a bottom at $755.70 which was the lowest level since way back in late 2003. All of the other precious metals remained above their lows from 2015, but platinum has been nothing short of a dog with fleas. The price of platinum has been trading at a discount to gold since 2014 and to palladium since September 2017. Over recent weeks and months, the discounts against both other precious metals reached all-time highs.

Platinum was looking sexy in late February

In a piece for FA Trader on February 27, I wrote that an upside correction in platinum was long overdue. 

Source: CQG

As the weekly chart of NYMEX platinum futures highlights, the price recently traded to its highest price in 2019 and the peak level since last June at $905.50 per ounce. On the nearby July futures contract, the price traded up to $920.40 per ounce on April 8. Price momentum and relative strength indices are both rising towards overbought territory, and weekly historical volatility is up above the 23% level. The open interest metric has declined while the price has risen falling from 88,008 contracts on January 4 when the price was at a high at $833 to 74,430 late last week. Declining open interest and rising price is typically not a technical validation of an emerging trend in a futures market. It is possible that platinum is on the verge of another price correction to the downside given the recent price action in the other precious metals.

Precious metals corrected

While platinum is around $100 above its price level in early 2016, the price of palladium has risen almost three-fold since then. Palladium hit an all-time peak at $1599.10 in March, but the price has corrected lower over recent weeks.

Source: CQG

As the weekly chart of NYMEX palladium futures shows, the price has come down to the $1358 level over the past few weeks.

Gold has also moved lower from its February highs while the price of platinum has appreciated.

Source: CQG

The weekly chart illustrates that gold has declined from $1344 in February to just under the $1299.20 level.  

Source: CQG

Silver retreated from a high at $16.20 in February to $15.21 per ounce. While all of the other three precious metals have been slipping, platinum has bucked the trend by moving to a new high for this year.

Source: CQG

The daily chart shows the rise from $786.20 on the July contract in mid-February to a high at $920.40 on April 8, an increase of 17.1%

The performance in PPLT

On February 27, the PPLT ETF product traded to a high at $82.69 per share.  

Source: Barchart

As of Monday, April 8, PPLT traded to a high at $86.44. Since the mid-February low at $73.88, then ETF gained 17%. PPLT holds physical platinum bullion and each share represents one-tenth of an ounce of platinum.

The other choice in the ETF market is the PLTM product which also holds the physical metal but represents one-hundredth of an ounce of platinum.

Source: Barchart

Over the same period, PLTM appreciated from $7.77 to a high at $9.11 per share, a rise of 17.2%. Both products do an excellent job replicating the price action in the platinum futures market. PPLT has net assets of $591.02 million and trades an average of 93,277 shares each day. PLTM has much lower net assets of $3.8 million and trades an average of 8,844 shares per day. However, the expense ratio for PPLT is 0.60% while PLTM charges holders 0.50%. It is possible that the lower cost for PLTM will attract assets away from PPLT over the coming weeks and months if the platinum market continues to move higher.

Risk rises with price, but platinum could still have lots of upside compared to the prices of gold and palladium

While platinum is moving towards overbought territory when it comes to both the price momentum and relative strength indicators and a pullback could be in the cards, any dip in the platinum market could present a golden buying opportunity for the metal.

The risk of a correction during any bullish price trend rises with the price, but platinum continues to trade at discounts to gold and palladium making it a compelling metal that offers an excellent value proposition and potential for further percentage gains.

Source: CQG

The weekly chart shows that platinum traded to an over $500 per ounce discount to gold in February 2019 but has recovered to a $393.10 discount most recently. The long-term average for the price relationship between platinum and gold dating back to the 1970s displays a median of a $100 to $200 per ounce premium for platinum over the yellow metal.

Source: CQG

After trading to a $705.20 discount to palladium in March, the discount for platinum fell to $453.30 on April 8. Platinum traded at over a $500 per ounce premium to palladium from 2003 through 2014 and hit a high at over a $1600 premium in 2008.

The bottom line is that platinum remains historically inexpensive compared to gold and palladium which means that there is a lot more upside potential for the price.

The next technical level to watch on the upside in the platinum market is at just over the psychological $1000 per ounce mark. I am bullish on the price of platinum and believe that the long overdue upside price action could take it to higher highs given the price action in the other precious metals.

Andy Hecht covers Commodities and Forex as one of the original contributing analysts at FATRADER. 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.
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