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Platinum has had a very good run lately and has just broken the 1200 resistance level in the past two days. It is clearly overbought in the short term, after a rally that saw its price double since the March 2020 bottom at 600.
Many investors are wondering whether they should take profits or not.
We ourselves are long Platinum in our MODEL PORTFOLIO through a 2x Leveraged ETF that is currently delivering a +64.4 % profits.
Although, traders should probably tactically take some profits at these levels, we think that Platinum is starting a much more significant secular bull market and will catch-up with Gold, Palladium and Rhodium.
Platinum, is a precious metal, a rare earth and a chemical catalyst with significant industrial use.
It is embarking on what we think is an enduring bull market fuelled by both technicals and fundamentals. Platinum has plenty of price guidance from palladium and gold, which reached new highs in 2020, and there is good potential to play catch-up as the metal is uniquely uniquely positioned for a clean-energy future.
Fundamentally
A chemical catalyst with the highest melting point of the precious metals, it trades at about half the price of palladium. New technologies such as Hydrogen fuel cells and its lower cost give platinum an upper hand in auto-emission controls.
When palladium dipped to a steep discount just over a decade ago, auto manufacturers found ways to switch from expensive platinum. The tide has turned, the diesel emission scandal is long past and platinum is a primary, low-cost catalyst for hydrogen-powered fuel cells.
Demand recovery for platinum is likely to tighten the metal’s demand/supply market through 2022, as vaccine rollouts help ease fears of coronavirus mutation pressure on metal purchases from the auto, jewelry and industrial sectors.
New demand — hydrogen fuel cells in particular — should revive mid- to long-term consumption growth and lead to higher prices.
The World Platinum Investment Council (WPIC) published the 25th edition of its Platinum Quarterly for the third quarter of 2020 in November, which also included the first forecast for 2021.
Despite the strong quarter-on-quarter recovery in mine and recycle supply, the stellar rebound in automotive demand and sustained strong investment demand for precious metals lifted Q3’20 platinum demand well above supply, leaving the quarter in a deficit of -709 koz.
The deficit in 2020 is now expected to be just over 1.2 million ounces, with the outlook for 2021 a forecast deficit of -224 koz.
Overall, Q3’20 saw large sections of the market, both supply and demand, returning to near-pre-COVID-19 operational levels as global economic conditions improved compared to the first half of 2020.
Total platinum supply in Q3’20 was down by 5% from Q3’19; modest when compared to the 36% year-on-year fall in Q2’20.
Total mine supply grew to within 4% (-66 koz) of the Q3’19 level as operations ramped up capacity over the quarter. However, the total mine supply forecast for 2020 sees a 21% fall (-1,300 koz) year-on-year with c.-400 koz due to COVID-19-related mine shutdowns and c.-900 koz due to the impact of the converter plant outage in the first half, compounded by the recent announcement of a similar outage in the last two months of 2020. The latest outage will alone reduce supply by c.-350 koz this year.
Investment demand increased considerably in Q3’20, up year-on-year by 291% (+730 koz), with significant year-on-year rises in ETF demand (increase of +336 koz) and bar and coin demand (increase of +42 koz).
This was aided by the increase in stocks held by exchanges (primarily NYMEX approved warehouse stocks) which rose by +351 koz year-on-year as market making banks continue to increase these stock levels. Investment demand is expected to grow by 32% (+406 koz) in 2020, as precious metals including platinum remain an attractive alternative investment, supported by platinum’s deep discount to gold. A healthy 123% increase in bar and coin investment is forecast for 2020, and demand will continue to remain high by historical standards going into 2021.
Despite COVID-19 workplace requirements in plants impacting capacity across the globe, pent-up vehicle demand and incentives in Europe and elsewhere drove growth in global automotive production levels. Consequently, automotive demand for platinum in Q3’20 was just 3% below Q3’19. The early adoption by some cities and provinces of China 6 legislation for light duty vehicles and the ramp-up of heavy duty vehicles’ compliance requirements to China VI saw China platinum auto demand growth of 68% (+30 koz) year-on-year in Q3’20.
A 24% (+575 koz) annual increase in global automotive demand for platinum is forecast in 2021 as light duty vehicle production is set to increase 15%, and heavy-duty vehicle production grows by 5%. Increased loadings to meet more stringent emissions levels will also benefit the demand for platinum.
So too will the potential for some platinum being used in place of palladium in gasoline autocatalysts and some shift from palladium to platinum in diesel after-treatment systems. Substitution in gasoline engines is expected mainly in China and North America in 2021.
The price of palladium remains over $1,000 per ounce above platinum, maintaining a high incentive for substitution, particularly as automaker profits suffer from lower sales.
Global platinum jewellery demand in Q3’20 bounced back by 27% quarter-on-quarter as pandemic-related restrictions eased, with a 14% (+29 koz) increase in China. Looking to 2021, global jewellery demand is forecast to gain 13% (+246 koz), with all regions seeing double-digit growth.
Low platinum prices prompted strong imports of platinum into China during the early months of the COVID-19 pandemic by jewellery manufacturers. As China’s government is expected to maintain their successful virus containment protocols, consumption is expected to continue to improve, with platinum jewellery demand expected to increase in 2021 by 13% (+107 koz) – the first annual rise since 2013.
Technically
Platinum has formed a strong price foundation at about $1,000 an ounce, and we believe it is on a path to revisit initial resistance at about $1,500, where the trend reversed in 2008. These levels represent the two most-traded price clusters.
The following graphic depicts the halfway mark from the 2008 peak to the 2020 low coming in just below $1,500, which was also a primary support area from 2010-13. Other chemical-catalyst metals — palladium and rhodium — indicate plenty of upside for platinum.
Platinum’s upward-sloping five-year moving average at about $1,000 suggests the significance of this level for base-building after a significant break of the downtrend in pace since the March 2008 peak at 2’300.
Moreover, in the last super commodity cycle that lasted form 2001 to 2008, Platinum prices more than quadrupled from their lows, something which projected using the March 2020 wash-out low at 600 would point to a 2’400 target price.
Another interesting indicator is the discount / premium to Palladium, the main competitor of Platinum in industrial use.
As the following chart shows, Platinum used to command a hefty 3 to 5 times premium over Palladium and only traded at a discount in 2000 and now. These discount points usually indicated the beginning of significant rallies in the past.
In Conclusion
Although Platinum is short term overbought while testing its 200 days moving average at 1200 and could see a pullback towards 1000, the long term picture remains extremely positive for the metal benefitting from the global economic recovery as well as from its price advantage when compared to Palladium.
The physical market should remain in deficit for at least another two years and it would take a significant rise in prices to make scarp re-cycling a significant addition to supplies.
From current levels, we see a minimum target of between 1500 and 1800, and even potentially a challenge of the 2008 all-time high at 2300.
In our Model Portfolio we use a leveraged ETF to gain exposure to Platinum
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