Last week we pointed out the shooting star monthly candle in spot palladium and, sure enough, from a high mid-January at $1,138 per ounce it’s fallen to $957 – so far. Our timing, thanks to technical analysis, was spot on and helped by the fact that its ratio to platinum was at its most extreme since 2001 (when a car manufacturer tried to corner the market in the former). Which then reminded me of the meeting I had recently with the CEO of the World Platinum Council, Paul Wilson.
Being a chartist I don’t often interview company directors – I just look at charts of their share price. But an enterprising young man from a public relations company caught my eye in my overflowing email inbox – and I skipped along to St James’s.
Unfortunately, I didn’t meet the young chap as I think he’d been elbowed out by his boss. The Council, supported by the big miners, aims to educate investors and stimulate demand for PGMs – platinum, palladium, rhodium, ruthenium, osmium and iridium.
I agreed with Mr Wilson that the valuation of platinum was peculiar as, despite strong fundamentals, it was trading at a record low ratio of 0.71 ounces of gold to one of plat. He saw this as one of many reasons to buy the metal, not least as a substitute for palladium in the automotive industry, but also jewellery demand which has been steadier, and investment demand which fell sharply in 2017 (some believe this was caused by hedge funds unwinding positions because the deficit in production was not reflected in the price).
Admittedly a niche investment vehicle, exchange traded funds and notes exist on the physical and futures contracts, the latest of which was launched by New York firm GraniteShares last month. Most interestingly he explained how in China ICBC bank sets up secondary savings accounts for retail clients where monthly payments are turned into physical gold and stored in vaults. Clients like this as it’s a way of hedging against currency weakness and is a mode of exchange they have trusted for generations. In the UK, a FinTech disruptor launched a debit card backed by gold deposits that operates in a similar way to FX debit cards.
Okay, but what do my charts say? Platinum’s failed again at the $1,025 area so we favour a drift back down to support around $890; nothing earth-shattering but 10 per cent. In sterling, one can see that price action is dominated by the metal’s price rather than the exchange rate. It’s ratio to gold could skid along the bottom of the chart for a very long time, so often the case in a bear market. We will also not rule out a dip below 0.70, say to 0.65 and even a very brief stint at 0.60. Below 0.50 is considered highly unlikely.
The rhodium chart, where we’re using prices supplied by Johnson Matthey, is quite different, rallying steadily from a multi-year low at $575 per ounce, comfortably surpassing its 2014 high at $1465 recently. Produced mainly in South Africa and Russia, like most PGMs, the auto industry is again its major buyer although it’s also used in turbine engines, jewellery and electronics. We see prices continuing the upward trend at a steady pace. Note: the record high was $10,050 in 2008!
Charts for this piece: platinum, rhodium, platinum in pounds, platinum/gold ratio.
