An Outlook for Platinum
Platinum has a period of seasonal strength in the first five months of the calendar year. What are prospects for a seasonal trade this year?
Thackray’s 2011 Investor’s Guide notes that platinum has a period of seasonal strength from January 1st to May 31st. The trade has been profitable in 20 of the past 24 periods. Average gain per period was 9.2%. A major reason for strength over this timeframe is increasing demand for platinum used in automotive catalytic converters during the key spring auto buying season. Catalytic converters consume about 37% of the world’s platinum production. Secondary reasons include improving demand for platinum used in jewelry and speculative buying in anticipation of higher precious metal prices.
Demand for platinum in 2011 is expected to increase significantly thanks mainly to continuing recovery in auto production and sales. Automobile sales increased over 11% in 2010 and analysts are expecting stronger growth in the year ahead. The cyclical recovery in global auto sales is expected to maintain momentum into the spring 2011 buying season. Improving access to credit and recovering economic fundamentals should enable new car sales to reach a record high. Emerging markets in China, India and Brazil will lead the way. Adding to demand is tighter regulations in the U.S. over carbon dioxide emitted by larger internal combustion machines, which will place further emphasis on catalytic converters in large vehicles such as farm equipment.
The introduction of physically backed Exchange Traded Funds (ETFs) also has increased demand. London based ETF Securities launched the first physically backed platinum ETF last spring (Symbol: PPLT). It launched a second physically backed “white†precious metals ETF (Symbol: WITE) at the end of November that holds a basket of precious metals weighted 55 percent Silver, 33 percent Platinum and 12 percent Palladium.
Platinum’s intermediate technical profile turned positive near the end of November. Intermediate trend remains up. Resistance is indicated at $1,806 U.S. per ounce with support falling on the $1,631 U.S. level. Short term momentum indicators including Stochastics, Relative Strength Index and Moving Average Convergence Divergence are recovering from oversold levels. Strength relative to the S&P 500 Index and gold turned positive in December
A direct way to invest in platinum for the current period of seasonal strength is through ownership of available physically backed ETFs. Platinum equities also are available. Please consult with your Investment Advisor for specific equity recommendations. It’s best to avoid equities in junior non-producer companies in the sector.
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