Platinum taps new highs

  on August 29 2012 9:34 AM

SGOL, PPLT, GLD, PALL

The recession took away much of Platinum's relevance, and the rising Gold prices took away Platinum's premium.

Now due to major labor strike with Lonmin plc (LN:LMI) in South Africa, Platinum is back in focus. Platinum is back strong, and just started taking a breather.

It is important to understand what this strife is before getting focused only on the dull White metal. This is a situation where social strife created financial woes. Police officers mowed down striking workers, and the death toll of protesters has reached 34 with more than 70 persons injured.

If you saw a rally like this in Gold, there would be talk of beginning of inflation because in the last week and a half we have seen the price of platinum rise from about 1,400 to 1,550.

Gold rose too, but for different reasons, up from about 1,620 to about 1,670. The one metal that has tracked Platinum is Palladium, which has risen from about 580 to 643oz.

When you see a sudden move highere in a metals price traders, speculators, and investors start to look back over their long-term charts to see if the metal has or is setting up to make a new high or make a run at an old high (overhead Resistance).

Most of the world's supply of platinum comes from South Africa one has to considers if Platinum could challenge its old highs or regain its historic premium over Gold.

Platinum's rise had been about 10% vs about 3% for Gold. Platinum has been trading on bad news out of South Africa, but Gold's rise seasonally and on rumors of QE-3 sometime soon by the US Fed.

The main reason why Platinum is currently trading at a discount to Gold is the macro uncertainty about the state of the global economy, which is weighing on Platinum's industrial attributes. Using history as a guide, once the world economy starts to really recover we may see Platinum trade at a premium to Gold again.

Historically, Platinum trades at a premium to Gold, but over the past 12 months Gold has traded at a premium to Platinum, but the spread between the 2 precious metals has come down dramatically from 225 at its widest to about 120 now. In the past, a discounted Platinum price to Gold has represented a buying opportunity in Platinum.

Palladium participated in the precious metals rally over the last week. Palladium demand is largely as an industrial metal and is looked at in the same light because they are both Platinum Group Metals (PGMs) and both are used in auto catalysts. Palladium will benefit from a move of this type in Platinum because there is a psychological relationship between the 2 metals.

Looking at the ETFS Physical Palladium Shares (NYSEArca: PALL) the only physical Palladium ETF traded in the US, the ETF was at 56.78 on 15 August and its highest close was last Friday at 64.37. Shares have paused and are down 0.9% Tuesday at 63.37.

Looking at ETFS Physical Platinum Shares (NYSEArca: PPLT), Monday and Tuesday have been the 1st real breathing days after 7 days of gains. On 15 August this was 137.31 and Friday's close of 152.42 compares to a mid-day price of 149.90 Tuesday.

The ETFS Physical Swiss Gold Shares (NYSEArca:SGOL) was at 0.3% at 165.00 and the more actively traded SPDR Gold Shares (NYSEArca:GLD) is + 0.35% at 161.93 Tuesday.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

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