A Low-Risk Entry Point In Platinum (Technical Analysis)

Paul Franke profile picture
Paul Franke
17.99K Followers

Summary

  • The "forgotten" precious metal has been incredibly undervalued and underowned for many years.
  • Futures market positioning suggests the next major move will be higher.
  • With all precious metals ready to rumble and gain in price following two years of sliding lower, now may be a great time to add platinum bullion to your portfolio.

Platinum bars 1000 grams pure platinum,business investment and wealth concept.wealth of platinum

Oselote/iStock via Getty Images

Several years ago, I wrote a couple of bullish articles on platinum, specifically through ownership of the Aberdeen Standard Physical Platinum ETF (NYSEARCA:PPLT), which charges 0.6% annually to manage and store bullion on behalf of stakeholders. Initially, prices rose for about a year, then reversed lower wiping out all gains during 2021-22. In effect, platinum prices have basically gone nowhere, flatlining for a good decade running. This stagnant result has occurred in the face of a very strong advance in sister-PGM palladium.

YCharts - Precious Metals Price Change, 5 Years

YCharts - Precious Metals Price Change, 5 Years

Today, in terms of valuation and supply/demand analysis, I categorize platinum as the second-best precious metal bullion idea for long-term buyers, after silver. Rising silver demand in industrial uses like solar panels, plus its monetary influence in coins historically, means total demand is getting close to outstripping inventories and new mine supply. You can read my positive silver views and logic in articles during August through iShares Silver (SLV) here and ProShares Ultra Silver (AGQ) here.

StockCharts.com - Platinum Nearest Futures, 1 Year of Daily Changes

StockCharts.com - Platinum Nearest Futures, 1 Year of Daily Changes

Why Bullish?

The rationale to buy platinum now is mostly technical in nature. The sentiment setup in the futures marketplace in September is basically the most bearishly positioned by speculative traders since August 2016, the last major bottom (excluding the panic COVID-19 liquidation of all assets in March 2020). Conversely, commercial traders and brokers (working for miners and end-users) are sitting on the most bullish net positive futures holding in recent memory. Below is a chart of the Commitment of Traders [CoT] report from the CME/COMEX exchange through September 13th, 2022. I have marked with green circles and arrows the price bottom argument, mimicking 2016's ultra-pessimism by traders and hedge funds.

https://www.tradingster.com/cot/legacy-futures/076651

Tradingster Website - Platinum Futures CoT, 2 Years

https://www.tradingster.com/cot/legacy-futures/076651

Tradingster Website - Platinum Futures CoT with Author Reference Points, 10 Years

If commercials are willing to be net long vs. almost continuous net short positioning, they must feel confident platinum supply/demand and trading forces cannot pull price any lower. This is a tremendously bullish development, and I purchased a stake through PPLT to piggyback September's stronger-than-usual commercial outlook.

Aberdeen Platinum Chart

Further evidence of a brighter future brewing for Aberdeen's platinum bullion product is a momentum reversal could be taking shape. A number of the momentum indicators I track did not move lower with the PPLT trust price lows of late August and early September. In particular, the Negative Volume Index and On Balance Volume readings held their lows from July, circled in green below.

Other positives include a quick reversal in price back above the important 50-day moving average, and a super-low Average Directional Index score over 14 days. Readings close to 10 in the ADX can pinpoint a lack of selling pressure, where better balance in share/trust selling and buying has developed.

StockCharts.com - PPLT with Author Reference Points, 1 Year of Daily Changes

StockCharts.com - PPLT with Author Reference Points, 1 Year of Daily Changes

Final Thoughts

When you cross excessive pessimism by short-term traders with improving momentum indications, a smart buy entry proposition is usually at hand. I was already growing quite bullish on precious metals as a hedge against the economic/political instability building all over the world. With the Federal Reserve close to pushing the U.S. economy into a tailspin from its late response to inflation, a strong buy signal for all precious metals, including platinum, will come with the realization yet more money printing is approaching in 2023. Just like the COVID-19 pandemic decision to turn on the printing presses propelled a monster rally in precious metals, the looming pivot to support the economy may support all kinds of flight-to-safety and monetary hedging demand for platinum.

In addition, the long-term outlook for platinum is quite positive, as many catalytic converters are switching designs from more expensive palladium to platinum. The odds of a catch-up move in platinum to palladium and gold (where platinum has traditionally traded at a higher price than both before 2018) could send this precious metal above $2000 an ounce in coming years. From $900 an ounce currently, today may be the perfect time to acquire platinum bullion in your portfolio through PPLT.

YCharts, Traditional Premium for Platinum vs. Gold/Palladium, 1987-Present

YCharts - Traditional Premium for Platinum vs. Gold/Palladium, Monthly Chart 1987-Present

If I am wrong, we will know it soon. I would consider using a sell-stop level under $800 per ounce for platinum, the multi-year low reached 3 weeks ago. Similarly, a drop in PPLT below $76 would cause me to rethink the bullish thesis and potentially liquidate my stake.

Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.

This article was written by

Paul Franke profile picture
17.99K Followers
Nationally ranked stock picker for 30 years. Victory Formation and Bottom Fishing Club quant-sort pioneer.....Paul Franke is a private investor and speculator with 36 years of trading experience. Mr. Franke was Editor and Publisher of the Maverick Investor® newsletter during the 1990s, widely quoted by CNBC®, Barron’s®, the Washington Post® and Investor’s Business Daily®. Paul was consistently ranked among top investment advisors nationally for stock market and commodity macro views by Timer Digest® during the 1990s. Mr. Franke was ranked #1 in the Motley Fool® CAPS stock picking contest during parts of 2008 and 2009, out of 60,000+ portfolios. Mr. Franke was Director of Research at Quantemonics Investing® from 2010-13, running several model portfolios on the Covestor.com mirror platform (including the least volatile, lowest beta, fully-invested equity portfolio on the site). As of August 2022, he was ranked in the Top 5% of bloggers by TipRanks® for stock picking performance on positions held one year. A contrarian stock picking style, along with daily algorithm analysis of fundamental and technical data have been developed into a system for finding stocks, named the “Victory Formation.” Supply/demand imbalances signaled by specific stock price and volume movements are a critical part of this formula for success. Mr. Franke suggests investors use 10% or 20% stop-loss levels on individual choices and a diversified approach of owning at least 50 well-positioned favorites to achieve regular stock market outperformance. The short sale of securities in overvalued, weak momentum stocks as pair trades and hedges is also a part of the Victory Formation long/short portfolio design. "Bottom Fishing Club" articles focus on deep-value candidates or stocks experiencing a major reversal in technical momentum to the upside. "Volume Breakout Report" articles discuss positive trend changes backed by strong price and volume trading action.

Disclosure: I/we have a beneficial long position in the shares of PPLT, PALL, SLV, GLD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This writing is for educational and informational purposes only. All opinions expressed herein are not investment recommendations, and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity and is not a registered investment advisor. The author recommends investors consult a qualified investment advisor before making any trade. Any projections, market outlooks or estimates herein are forward looking statements and are based upon certain assumptions and should not be construed to be indicative of actual events that will occur. This article is not an investment research report, but an opinion written at a point in time. The author's opinions expressed herein address only a small cross-section of data related to an investment in securities mentioned. Any analysis presented is based on incomplete information, and is limited in scope and accuracy. The information and data in this article are obtained from sources believed to be reliable, but their accuracy and completeness are not guaranteed. The author expressly disclaims all liability for errors and omissions in the service and for the use or interpretation by others of information contained herein. Any and all opinions, estimates, and conclusions are based on the author's best judgment at the time of publication, and are subject to change without notice. The author undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional materials. Past performance is no guarantee of future returns.

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