Platinum's turn to shine

Platinum's turn to shine

Don Vialoux, Financial Post Published: Saturday, January 10, 2009

A worker casts an ingot of platinum at the Krastsvetmet nonferrous metals plant in the Siberian city of Krasnoyarsk. The platinum price has plunged but incentives to revitalize the auto industry ...

Ilya Naymushin, Reuters Files

The outlook for platinum is improving. 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; the average gain per period was 8.3%.

In contrast, the average gain for gold during the same period was only 0.9%.

TECHNICAL INFLUENCES

Technical prospects for platinum have turned positive. A strong recovery rally is due. Platinum fell 67% from its high at US$2,299 per ounce in February to its low at $752.10 in October.

Platinum recently broke above a double bottom pattern on a move above resistance at US$896 and has established an intermediate uptrend. Next intermediate technical target is US$1,200.

The chart shows the optimal entry points over the past seven years.

Other precious metals (gold, silver, palladium) also have developed positive intermediate technical profiles. Platinum will "piggy back" on their strength into spring.

FUNDAMENTAL INFLUENCES

Fundamental prospects for platinum are just starting to turn positive. Demand for Platinum mainly comes from jewellery (40% of demand) and catalytic converters used in the auto industry (37%).

The main reason for the price decline during the past year has been a drop in demand for platinum used in catalytic converters. U. S. auto sales virtually collapsed but the low point appears to have been reached. Canadian and U. S. government support of the auto industry will kick-start demand for autos in the first quarter of 2009.

Demand for platinum by the auto industry will recover as the year progresses. Meanwhile, demand for platinum for jewellery purposes has started to recover due to its current low price relative to gold.

A direct way to invest in platinum for the current period of seasonal strength is to own iPath platinum Exchange Traded Notes (PGM/ NYSE). Technicals on PGM are almost identical to technicals for the commodity.

Platinum equities also are available; consult your advisor for specific recommendations. But avoid junior non-producing companies in the sector.

--- - 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 ETFs or stocks mentioned in this report.