Platinum Severely Undervalued
4 Charts of Platinum
September 2nd 2022
by David J Mitchell
One of our favourite macro investment trades is Platinum at this time, and in line with my new focus of keeping it brief and simple for clients in “Snapshot” articles I thought I would demonstrate the great appeal of Platinum in just 4 charts, clearly highlighting the opportunity of a very exciting investment case trade.
The first chart below demonstrates an 18-Year base building pattern in price versus the USD. Why is this so important?
Base building patterns, especially multi-decade patterns are exceptionally strong technical patterns, used not only by traders, but investors across the spectrum including industrial buyers, financial institutions, and money managers.
The opportunity to buy at the base range of between US$800/oz - US$850oz is an exceptional entry zone.
Platinum has experienced large annual supply-demand surpluses at times within the last 18-year period and despite this, the aforementioned support zone has held like a rock.
Commodity markets alongside precious metals have soared in value over the last 18 years. Since year 2005, Gold has risen over 4X and Silver nearly 3X, Palladium over 11X, whilst for Platinum it can be bought today at the very same levels that it traded at back in 2005.
Chart 2 below demonstrates that Platinum has formed a very clear descending triangle pattern over the last 14-years.
This descending triangle pattern is typically viewed as a bearish pattern (price expected to break lower), but in fact it is also a very bullish pattern (price breaks higher), given the considerable amount of time taken to build up this price pattern.
The height of the triangle at the start of the formation is taken as the initial length of the eventual breakout, which takes us to US$2,600/oz initially (over 3X from today’s levels).
Typically, these patterns make an initial attempt of breaking out on one side of the triangle, which fails and then goes in the opposite direction. This can be seen in the March 2020 global asset market flash crash.
Next chart 3. It would appear that 78.6% Fibonacci retracements are well embedded into the Platinum chart, as indicated in the next chart.
Chart 4. Finally, the last chart below and the most telling of all…
There exists multiple global research agencies, united in their assertions that the industrial demand curve for Platinum will rise dramatically over the next few decades from 2022 onwards. At the same time mining and production of Platinum will continue to be hampered by the impact of significant ore grade degradation and the difficulties of attracting investment into South Africa (in particular) where 72% of Platinum is presently mined.
The USA Department of Energy’s chart below accurately demonstrates this important supply-side component. The highlighted area (cross hatch) above the purple line, indicating that Total Mine Production + Supply from Recycling Platinum, will fall well short of the industrial demand curve moving forwards.
We are already experiencing a global supply-demand deficit in Platinum (according to World Platinum Investment Council), and it is very apparent that the incredible size momentum of these deficits, will increase year-on-year. In this particular situation, with a growing supply-demand deficit in Platinum, a significant price revaluation is the only possible outcome.
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Disclaimer : The information contained in this website should be used as general information only. It does not take into account the particular circumstances, investment objectives and needs for investment of any investor, or purport to be comprehensive or constitute investment advice and should not be relied upon as such. You should consult a financial adviser to help you form your own opinion of the information, and on whether the information is suitable for your individual needs and aims as an investor. You should consult appropriate professional advisers on any legal, taxation and accounting implications before making an investment.