How High Chinese Sales Volume Says You Should Buy Platinum

 |  Includes: PPLT
by: Avery Goodman

As noted in a previous article, platinum sales at the Shanghai Gold Exchange surged from 118 kg to 830 kilograms or about 703% from August 3 to August 5, 2011. That sharp increase in platinum sales occurred in response a sudden drop in platinum prices, driven by margin calls and forced liquidation among over-leveraged speculators in western futures markets.

Platinum prices have recovered but the price increase does not seem to have deterred continuing purchases. On Monday, August 8th, with platinum prices rising about $25 per kg. over Friday, sales were 358 kg. By Tuesday of this week, platinum prices were higher still, but undaunted by the price increase, sales shot back up to 758 kg. Finally, on Wednesday, with significantly greater price increases, and a one-day huge jump in Chinese stock prices, platinum sales volume moderated to 262 kg.

These numbers must be viewed in light of the fact that the entire mining supply of platinum is a mere 190,000 kg per year, which is a very tiny amount that must be subdivided among jewelry, investment and industrial buyers. Add to this the fact that the Shanghai Gold Exchange is a very tiny part of the total Chinese platinum market. China is, by far, the largest buyer of platinum in the world, and occupies a position in the platinum market similar to that occupied by India in the gold market.

Some very interesting insights and information are sometimes supplied by readers. Davis Waldo is described by his Seeking Alpha bio as a stock broker, and he is also a reader of my previous article on this subject. His comment was particularly interesting. Mr. Waldo calculated average Shanghai platinum trading volume in July 2011 at 145 kg per day. Average daily sales volume is probably more instructive on the subject of how large overall demand is, than any one day's volume. For August 2011, to date, Shanghai platinum sales have risen to an average of 401 kg. per day or more than 276%.

As described more fully here, here and here, the downside in platinum prices are buffered by the rising price of gold, while the upside is virtually unlimited. Heavily increased Chinese platinum sales volume at the Shanghai Gold Exchange is just one more voice out there that is screaming buy to anyone smart enough to listen.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.