Time to take platinum profits
Comment; Prices have anticipated an auto recovery
Don Vialoux, Financial Post Published: Saturday, May 30, 2009
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Technical Analysis
Our column on Jan. 10 noted that platinum has a period of seasonal strength from the end of December to the end of May. Since Jan. 10, platinum has gained 14.5%. Where does it go from here?
Seasonal influences
Thackray's 2009 Investor's Guide notes that platinum has a period of seasonal strength from the end of December to the end of May. The trade has been profitable in 17 of the past 22 periods. Average gain per period was 8.3%. The gain during the current period has been above average.
In contrast, the performance of platinum from the end of May to the end of December tends to be random. Prices have improved in six of the past 10 periods and dropped in four periods. However, the average loss per period was 5.7%.
Technical influences
Platinum's technical profile currently is positive. However, technical signs of an intermediate peak have appeared. The intermediate trend is up. Platinum recently completed a "golden cross" when its 50-day moving average moved above its 200-day moving average. Resistance recently formed at US$1,252 per ounce. Support has formed at US$1,071.10.
Moving average c onvergence divergence and relative strength index have cooled from short-term overbought to neutral levels. Stochastics are short-term overbought. The current price is US$1,151.40 per ounce. Fundamental influences A major reason for strength during the current January to May period was anticipation of a recovery in the world auto market. Catalytic converters used in the auto industry to control exhaust emissions take approximately 37% of the world's platinum production. Platinum virtually collapsed from March, 2008, to October, 2008, by falling from US$2,299 to US$752 per ounce when the world auto industry cratered under recessionary pressures.
Early signs of a recovery in new auto sales surfaced in January, when new auto sales in China exceeded new auto sales in the United States for the first time. North American auto sales also began to recover this spring, when auto dealers offered significant incentives.
Chapter 11 bankruptcy by Chrysler LLC and bankruptcy by General Motors Corp. (GM/NYSE), likely to be declared next week, completes the end of a sad era for North America's Big Three auto producers.
A restructured industry bolstered by a $50-billion infusion by the U. S. government and a $10-billion infusion by the Canadian government sets the stage for a recovery by the industry. A recovery for the most part already has been anticipated by platinum prices.
A secondary reason for strength in platinum is general strength in precious metals led by gold. Gold is responding to weakness in the U. S. dollar relative to other major world currencies. Platinum, palladium and silver prices have been tagging along. What to do? The Jan. 10 column noted that: "A direct way to invest in platinum for the current period of seasonal strength is to own iPath Platinum Exchange-Traded Notes (PGM/NYSE)." Since Jan. 10, PGM has gained 13.4%.
Platinum's period of seasonal strength has come to a close. Technical influences show that positive momentum recorded in the first quarter has dissipated. In addition, anticipation of growing demand for platinum used by the auto industry for catalytic converters already is in the market.
Platinum already has gained 51% from its low last October. Now is the time to take seasonal profits in platinum, platinum equities and platinum exchange-traded notes.
-Don Vialoux, chartered market technician, is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange Traded Funds. Reports are available at www.timingthemarket. ca. Mr. Vialoux does not own platinum exchange-traded notes or platinum equities. |
