In a May 23, 2023, Barchart article, “Platinum – The Bullish Trend Reaches a Critical Point,” I wrote, “Platinum’s short-term bullish trend will remain intact if the price holds above the $1,050 level.” Nearby NYMEX platinum futures were trading at $1,065.80 per ounce on May 23. On June 29, the price probed below $900, as another attempt at a rally failed. Platinum’s bullish trend reached a critical point in late May and turned bearish. In late June 2023, the bearish trend challenged its crucial support level.
The bearish trend approaches the late February 2023 low
After rising to a new high for 2023 in April, platinum futures fell to a new 2023 low on June 29.
The chart highlights the rise in nearby NYMEX platinum futures to $1,129.80 per ounce in April. While the level was the highest price this year, it was a lower high since platinum futures reached $1,290.60 in February 2021.
After failing at the April peak, platinum has declined to its most recent low of $893.30 on June 29. Platinum futures could not hold the February 2023 $903.40 per ounce low. The next support area now stands at the September 2022 $804 bottom.
$1,000 is a pivot point
Since late 2020, nearby NYMEX platinum futures have been trading around the $1,000 per ounce level, which has become a significant pivot point for the rare precious metal.
The twenty-year chart displays technical consolidation around the $1,000 per ounce level. Over the past years, buying platinum below the pivot point and taking profits above has been the optimal approach to trading or investing in the platinum market.
WPIC says the platinum market is in deficit
Meanwhile, the World Platinum Investment Council recently reiterated its forecast for a platinum deficit in 2023. The WPIC said it forecasts a one-million-ounce supply versus demand shortfall this year. Moreover, the WPIC projects that the deficit will continue to widen until 2027 due to growing automobile demand.
Source: WPIC
While the chart shows the most significant deficit over the past years at 983,000 ounces, deficits in 2013, 2014, 2015, 2016, 2019, and 2020 did little to support rallies in platinum futures that have been in a bearish trend since the 2008 record high. The WPIC is a trade association supported by funding from some of the world’s leading platinum producers, so it has a natural bullish bias.
One of the leading factors that could support higher platinum prices is that Russia is one of the two dominant world producers.
Source: Statista
The chart shows South Africa was the leading platinum producer in 2022, with 140 metric tons of output. Russia was second with only 20 tons or 643,014 troy ounces. Meanwhile, the war in Ukraine, sanctions on Russia, and Russia’s retaliatory measures could present problems for platinum’s supply and demand balance, pushing the one-million-ounce deficit higher. In Russia, platinum is a byproduct of nickel output in the Norilsk region of Siberia.
Buying strength has been a mistake- Buying on price weakness has been the optimal approachWhile trend-following trading suggests buying strength in markets and selling weakness, platinum’s consolidation since late 2020 has made buying on strength and looking for a technical breakout a mistake. Buying platinum below $1,000 and selling when the price moves above the pivot point has been profitable over the past years.
Gold and palladium prices have reached record highs over the past years, but platinum remains under half the level at its 2008 $2308.80 record high. Platinum is a thinly traded metal in the futures arena, and the increasing demand from green energy initiatives, limited supply, and the expanding deficit could eventually push the price above the February 2021 $1,290.60 high, the critical technical resistance level. Low liquidity tends to exacerbate highs and lows in a futures market. However, platinum has yet to attract the investment demand necessary to ignite a significant rally. Therefore, in June 2023, range trading remains the optimal approach for traders and investors. As of June 29, at near $900 per ounce, nearby platinum futures were in the buy zone.
PPLT tracks platinum futures prices
The most direct route for a risk position in platinum is via the physical market for bars and coins. However, low liquidity in the physical market leads to high premiums for platinum bullion and is only appropriate for very long-term holders.
The NYMEX futures provide a delivery mechanism for the 50-ounce contracts. Taking delivery involves a warrant representing platinum held in an NYMEX-approved depository. Removing the metal from the warehouse requires charges, and when it comes time to sell on the NYMEX futures market, putting platinum back on warrant can require more charges, including assaying the metal.
The Aberdeen Physical Platinum ETF product (PPLT) is liquid and tracks platinum futures prices. At $82.85 per share on June 29, PPLT had $872.702 million in assets under management. PPLT trades an average of 114,873 shares daily and charges a 0.60% management fee.
Nearby NYMEX platinum futures closed at the $1,073.70 per ounce level on December 30, 2022. The price rose 5.22% to $1,129.80 in April and fell 20.93% to $893.30 in June.
The chart illustrates PPLT’s closing level at $99.28 at the end of 2022. PPLT rose 5.43% to $104.67 in April and fell 21.24% to $82.44 in June. The ETF does an excellent job tracking nearby platinum futures prices. Meanwhile, distortions are possible as PPLT only trades during U.S. stock market hours, while platinum trades around the clock. Highs or lows in platinum during off stock market hours are not reflected in PPLT’s price.
Based on the price action over the past years, platinum is back in the buy zone well below the $1,000 level in late June 2023, and the odds favor a rally above the pivot point. However, it is impossible to pick highs or lows in any market, and platinum’s illiquid nature can cause prices to rise or fall to levels that defy rational, logical, reasonable technical, and fundamental analysis. When buying to trade platinum’s range, leave plenty of room to add on further declines as there is always a potential for a sudden downdraft. On the upside, short positions involve more risk, as a long-awaited bullish technical breakout could be explosive.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
