Markets

Technical analysis of platinum as of October 12, 2020

by Markus Blaschzok for GoldSilberShop.deLong-term huge chances of winning

Derivatives market: again weakness compared to the previous week

As in previous years, the situation for platinum is the opposite of that for palladium. After a week of light strength, weakness again appears this week, as in the previous weeks. The physical oversupply is currently only small, because whenever gold and silver rose, there was a slight deficit, which is likely to have resulted from increased investment demand in physically deposited ETF products. The rise in gold and silver prices at the end of the week on October 9th should also have led to increased investment demand and a deficit on the platinum market, as the CoT report of next week should show.

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The futures market data are in the neutral range

Platinum has outperformed all other precious metals over the past ten years and even fell in price due to a persistent oversupply on the physical market. In 2001, with a platinum-to-palladium ratio of 0.57, platinum was valued at a similarly low price as it is now, and then rose over the next five years to a ratio of five, which corresponds to about eight times the palladium price. Whether and how quickly platinum will develop better than the other precious metals again depends on political subsidies (fuel cells) and bans (diesel) as well as technological innovations, industrial demand and mine production. This means that a medium to long-term forecast is hardly possible. In any case, the statistical odds in relation to the risk seem to be very good if you invest in platinum speculatively over a decade. However, one should not invest more than 5% to 10% platinum in a well diversified precious metal portfolio and focus primarily on the monetary precious metals gold and silver.

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Historically, platinum is cheap relative to gold

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Platinum is also historically cheap to palladium

The long-term chart for platinum shows the long-term downtrend that was broken last year. The beginning of the recession and the shutdown created massive selling pressure, causing the platinum price to fall again briefly below 600 US dollars per troy ounce. The V-shaped recovery of the platinum price only succeeded because the mines were also affected by the shutdown and production had to be stopped, which also caused supply to collapse. Without the shutdown, only demand would have collapsed during the recession and the price of platinum would have fallen even lower, as in every recession of the past fifty years.

Now that the money supply has been expanded drastically by the central banks and will soon have doubled, as well as the gradual recovery of the economy, devalued fiat currencies are meeting with increasing demand, which should at least ensure that in the range of 800 US dollars Ground could be formed. In terms of the chart, there is a cross-resistance zone between the long-term resistance at $ 1,000 and the long-term downtrend at $ 1,100 a troy ounce. A rise above the downtrend would generate another medium to long-term buy signal. The platinum price should remain very volatile during the formation of a bottom and a trend reversal in the next two years, which should give short-term traders the appropriate opportunities for short-term profits again and again.

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There is support at $ 800 and resistance at $ 1,000 and $ 1,100

The daily chart shows the resistance at $ 1,000, which has allowed us to bet on a falling price over and over again over the past year. At the turn of the year 2019/2020, extreme relative weakness and oversupply built up on the platinum market, which ultimately resulted in a crash of the platinum price with the shutdown. The strength and price increase from April to August was due to the shutdown of the mines and had surprised us. In the meantime the mines have resumed some of their activity and the deficit has turned into a slight oversupply.

Since the middle of March we have mostly been on the sidelines and only at the mark of 1,000 US dollars did good traders again have the chance of a short trade up to 860 US dollars. From here it is difficult to make a short-term assessment in the run-up to the US elections. If the Republicans win with Donald Trump, the US dollar is likely to recover briefly and in this environment the platinum price could correct again to 800 US dollars or a little lower, which we would see as a countercyclical buying opportunity. On the other hand, if the Democrats win and Biden becomes the new US President, the US dollar’s decline should continue this year and platinum may rise again for a short time.

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After a breakout through longstanding resistance, support is often retested before the rally can continue

Should gold and silver break out in the coming trading week and make new highs, then platinum will target resistance at $ 1,000 again, especially if Biden wins the US election. Physical investors who want to play the historically favorable ratio of platinum to gold, silver and palladium in the long term should therefore ask themselves whether it really makes sense to wait for another setback of 100 US dollars and take the risk of this long-term entry opportunity miss.

Short-term traders who want to bet on a rising price of platinum, on the other hand, will find a better risk-reward ratio (CRV) with palladium, which is why we would trade palladium and not platinum long in the short term. Overall, we don’t like the setup as the platinum market has been jumping back and forth between oversupply and deficit in recent months. Furthermore, Friday’s rise with the weakness of the US dollar could have been a flash in the pan. Overall, the CRV is bad for a short-term trade until the US elections, so we’ll be on the sidelines until then. If Trump wins, we should get platinum even cheaper in the course of a short squeeze on the USD index.

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