FOCUS: Platinum Sees Physical Buying, But Price Outlook Is Hazy
29 September 2011, 2:52 p.m.
By Debbie Carlson
Of Kitco News
kitco.com
(Kitco News) - Demand for physical platinum picked up in the price break seen over the past few weeks, but platinum market observers aren’t ready to say whether the market has found a price floor.
October platinum futures on the Comex division of the New York Mercantile Exchange set an intraday high of $1,918.50 an ounce on Aug. 23 and fell as low as $1,475.30 on Sept. 26 before rebounding to close at $1,546.90 that day. Currently October platinum is trading around $1,525 as of Thursday.
The sharp break in price coincides with the fall that all financial markets saw during the past two weeks. Gold prices also fell nearly $400 an ounce, to a low of $1,535 during the shake out, but that market has rebounded further than platinum or other industrial precious metals like palladium and silver because of their linkage to the economy. With the global economic outlook dimming, industrial metals are getting hit harder. December gold is trading around $1,620 as of Thursday.
Part of gold’s swift rebound from its lows was sizable buying out of India as purchasers there snapped up the metal. Industrial users, too, came into the physical platinum market, but the price response hasn’t been as strong, says one physical platinum trader.
Industrial users, which include automakers and jewelry producers, have been active buyers as platinum’s prices slipped, the trader said. “There’s been strong demand from the industry, looking to get their forward needs covered through 2012,” he said.
The trader was surprised to see platinum prices fall under $1,600, but said the investor selling so far seems to be outweighing the demand by users. As prices hold in the $1,500-$1,550 area now buyers are getting a little gun shy, but if prices were to rebound by about $50 that could entice end-users back to the market.
The spread between gold and platinum widened out during the market thrashing, with the platinum/gold ratio falling to 0.94 this week, its lowest level since January 1992, said Eugen Weinberg, head of commodities research at Commerzbank.
Gold has been trading at a premium to platinum recently, which reflects the safe-haven quality of gold and that premium will likely stay as long as the nervousness over global economic situation persists. Yet Weinberg doesn’t believe the spread will widen further, citing the physical demand for platinum at these lower levels.
“One reason is buying by jewelry producers. We’re seeing platinum demand from them, especially as it’s cheaper than gold. It’s considered by jewelry producers as a superior metal,” Weinberg said.
Supplies for platinum are tight, which is also supportive for the white metal.
COIN, BAR DEMAND STILL STRONG
Peter Thomas, director of business development, PFG Precious Metals, said demand is strong across the precious metals. “I went to look for platinum last week, aggressively, and had a hard time finding any. It’s rare and getting rarer,” he said. “I sold almost all my ingots in the last two days. I haven’t seen a 50 ounce platinum bar in a while.”
Regarding platinum, his customers are asking for 1 ounce coins rather than bars. “There you have the stamp of integrity with a coin,” he said.
The spread between gold and platinum prices remains wide. A veteran of the last precious metals bull market, Thomas said he’s never seen the spread between the two metals move as violently as it did in the past two weeks calling it “horrific.” Despite the unusual premium gold is commanding over platinum, he is not seeing any customers swapping one metal for another.
FURTHER LOSSES STILL POSSIBLE
Although there is physical demand for platinum, market watchers aren’t ready to call a floor for the metal.
Mine supply is tight and it’s harder to get to the existing ores, but Thomas pointed out there is much more recycling of metal out of electronics and other retired devices. Palladium also represents a suitable substitute for platinum, he said.
Weinberg added if the economic does take a downturn, automobile purchases will decline, meaning less use of platinum in autocatalysts, the biggest user of the metal.
Investor selling is putting pressure on platinum. In this week’s Commodities Futures Trading Commission weekly commitment of traders report, speculators sold a significant number of bullish positions for the week ended Sept. 20. That doesn’t even cover the period that reflects the sharp sell-off – that didn’t start until Sept. 21. Friday’s data could show even more speculative sales.
When looking at exchange-traded funds, one of the main platinum ETFs, the ETF Securities Physical Platinum Shares (NYSE ARCA: PPLT) has seen redemptions, too. As of Sept. 27, outstanding shares were 4.450 million, with a net asset value of $155.18.
Those figures were as high as 5 million outstanding shares on Sept. 19, with a net asset value of $177.98.
The technical picture for platinum is cloudy, said Dave Toth, director of technical research at RJ O'Brien and also of rjomrt.com. Because the price break happened so fast and went so far, there are few price points in between for traders to use as guideposts. The severity of the fall has had some impact on long-term charts. “There’s really no way to tell … whether this is a correction or the reversal of the three-year bear trend. Even if you conclude this is merely a correction, is a one month decline sufficient?” he asked.
Yet he wouldn’t necessarily advocate getting aggressively short at these levels. The market could easily rally back to correct the September break with little ceiling overhead to stop a rebound. The Tuesday high of $1,591.20 is one resistance level, but beyond that nothing really stands as a secondary resistance until about $1,765, which was a support level before the price collapse, he said. For those who might be bullish he also heeds caution because the sell-off might not be over.
His suggestion for someone wanting to be in the platinum market short term is to use options with tight risk perimeters. Bears should use the $1,591 area as a ceiling and bulls could use call spreads to capture any rallies. “If it rallies you won’t make as much, but the reward is relative to the risk taken,” Toth said. |
