Today, we will analyze the technical case for investment into an often-overlooked asset: platinum.
Frequent readers in these articles will know our primary focus topic mainly based on gold and silver. One of the significant factors is that gold and silver are historically the dual monetary metals utilized as money since civilization. The lasting properties of gold and silver are unique that no other commodities can compete with. However, is it time for us to examine other precious metals?
Platinum aspects largest of its market come from automobile usage (41%) and jewelry (27%) as of 2018.
Investment request is exceedingly factor. For instance, in 2018 the venture involved just 4% of the complete 7,933 metric tons bought or 292 tons.
In any case, as of late as 2015, total venture request was almost twofold that 582 tons.
All things considered, that figure just spoke to 7% of the absolute interest part for that year.
With so little platinum acquired by investors, why think about it right now?
Let us study the data.
To start with, we will compare platinum with palladium costs.
The following is a three-section graph, appearing:
- Top – platinum/palladium ratio – in other words, the number of ounces of palladium that can purchase with one ounce of platinum.
- Middle – the price of platinum.
- Bottom – the cost of palladium.
Regard above that the ratio of 0.50 ounces of palladium for one ounce of platinum, is now paralleled for the lowest value ever reported.
The only relative rate occurred during 2001, in which the ratio likewise reached the 0.50 level. The blue shading shows these levels.
What were the costs of each metal the last time the ratio hit this 0.50 value?
Next, in the lower some portion of the graph, see the end result for the cost of each metal after the proportion bottomed in 2001.
Over the consequent two years, palladium plunged by 86%, falling right down to $150/oz. by 2003.
Also, platinum? It soared. By the peak in 2008, it had risen to $2,280/oz, nearly a 315% gain.
In addition, the ratio? It ascended from 0.50 to over 6.00.
As it were, palladium lost over 91% of its value contrasted with platinum in those seven years.
A significant sensational difference for two commodities which regularly lumped into a similar classification as non-fiscal precious metals.
Shifting to now, note again that the ratio had recently hit the similar level that it came to in 2001 when palladium started to drop, and platinum before long took off.
What is the costs today?
Platinum shut for this present week at $874/oz. on the fates advertise, while palladium closed at $1,358.
Again, the ratio has bottomed at only near 0.50 ounces of palladium for that single ounce of platinum.
Opportunity to purchase again?
While no one can predict the future flawlessly, we do have approximately four decades’ worth of ratio data at our end.
Platinum will mark cheaper than palladium for the second time in history.
Now let us present a more in-depth examination on platinum.
Above we display platinum since 2011. See how it had been in a 7-year downtrend, since the 2011 climax at $1,975 per ounce.
A precise descending channel of costs shaped as merchants developed at lower and lower intervals, shown in magenta.
At the beginning of 2018, it endeavored to beat this downtrend of merchants – in any case, it neglected to support the break.
We consider this a “false breakout” in specific terms – when a market insight of being prepared for a pattern change, yet dealers re-rise to drive costs lower once more.
See how it had returned into a multi-decade support zone going back to 2004 near $750 per ounce (black).
This region depicts strong support.
See how in March 2019, platinum at long last broke that 7-year downtrend for good.
It at that point flooded to close $920, trailed by a retracement a week ago toward $850.
From a technical basis, we discover platinum in a new position that is worthy of investment consideration:
It bottomed at $750 per ounce, a support region that dates back to 2004.
It has developed a 7+ year downtrend of sellers.
The platinum/palladium ratio is at a level that has only seen one other time in modern history. The last time this level was reached, platinum rose 315% in seven years.
Does this suggest platinum is set to skyrocket instantly?
Of course not.
Rates could still decrease marginally, back to support in the low $800’s or higher $700’s.
Nothing ever insured in the investment business, and one should only risk capital that is within one’s risk profile.
However, the risk/reward scenario for platinum at this time – especially in comparison to palladium – is extremely beneficial.
Due to the severe bifurcation in these two metals, replacement is likely to rise within the following five years within the automobile industry and amongst jewelers.
Investors can try to profit from anticipated substitution. The downside risk is moderate, while upside potential for a multi-year timeframe is considerable.
If investors prefer to invest in platinum, they should not do so all at once.
Dollar-cost equalizing over the course of several months or even several years into a high-probability bottom zone allows one to avoid the risk of a short-term decline right after an initial purchase.
For those with a multi-year time horizon and a moderate risk tolerance, the data shows investment into this metal could see significant gains over the years to come.