That said, we have taken the contrarian view and consider
the sector, and especially Platinum worthy of consideration as a longer-term
investment. Several weeks ago we highlighted the virtues of Pt. We
wrote, “Given the tale of doom
surrounding platinum, as a contrarian investor one needs to consider the
prospect of an investment in the metal. For one, demand for the metal
(especially in the automotive arena) exceeds global supply.
Figure one shows total
global supply and total global net demand for platinum. These figures are
provided by Johnson Matthey as shows a global deficit for the metal in 2012 and
2013. Barclays estimates that there will continue to be a global deficit for 2014
and 2015 to the tune of 1.8 million and 433,000 ounces, respectively. The large
deficit for 2014 was largely related to the South African mining strikes that
took an estimated 1 million ounces off the market.”
Looking at figure two, the supply / demand scenario should
work well for the price of platinum over the long haul.
The fundamental support from favorable supply-demand
dynamics is what is intriguing to us but we are watching Pt prices closely and
are building long-term positions. As we continually monitor the price of Pt,
one item jumped out. When looking at the daily price chart for Pt, it is
possible that we are seeing a major bullish divergence between the price of the
metal and its Moving Average Convergence Divergence (MACD) profile.
Several weeks ago Pt suffered a major bout of selling
pressure but soon after rebound to more reasonable levels. Recently the metal
has relinquished to the bears and have resumed its downward trend. Friday’s
action saw a bit of strength. If this should turn out to be another bounce at
these levels then the run could be quite aggressive. Notice how the price of
the metal is making a lower-low while the MACD is registering a higher-low.
This technical pattern paves the way for a near-term rally for Platinum. Should
this be the case it would confirm that selling pressure is abating.
We are not suggesting near-term trading around the idea. We
are longer-term holders but this information is useful for those of us that run
a hedge book (we do) and attempt to mitigate near-term price fluctuations as we
deal in the physical metal on a daily basis.
Joseph S. Kalinowski, CFA
joe@squaredconcept.com
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