Platinum Traders Try to Sort Out GM Mess
Fundamentals
Overnight Platinum prices have pulled back slightly, mainly due to a stronger US dollar. The US currency has fallen sharply over the past month, which is a strong indication that inflation could take a sharp turn higher. Precious metals have been one of the better performing sectors lately, due to the weakness in the greenback, which has made bonds and notes unattractive investments. The GM bankruptcy filing is a negative influence for Platinum prices, as it could lead to lower automobile production. Traders will now question what influence the current administration will have on the automotive giant. If the President chooses to push his green agenda on the carmaker by tightening emission standards, it could be seen as mildly bullish for the prices of Platinum and Palladium, both of which are used as catalysts in catalytic converters. The auto industry must see an improvement in the labor market and banking in order to see a large-scale recovery in sales. Consumers worried about whether they will remain employed are putting off buying vehicles, and those looking to purchase a vehicle have found difficulty getting financing. For this reason, the price of Platinum could move to parity with or trade under the price of Gold once again in the short to mid-term, especially if economic indicators sour. Longer term, however, the price outlook for Platinum is bullish for a number of reasons. First and foremost, the US government has been printing money at a rate never before seen, leading some to believe the nation will face inflation that will easily surpass levels seen in the 1970's. Also, auto sales will eventually pick up as the economy rights itself. Even if GM were to fail down the road, another carmaker will step in and fill the void created. Platinum is the scarcest of the precious metals, with Russia and South Africa accounting for 95 percent of global production. Any supply disruptions could cause prices to skyrocket, as we saw last year when South African mines were hit with rolling blackouts. Finally, if the price of Gold were to move higher, which is a likely scenario given the inflationary outlook, other precious metals will likely go along for the ride.
Trading Ideas
Traders not currently in the Platinum market may choose to remain on the sidelines until a short or medium-term trend develops. Longs may wish to consider using the strong gains over the prior two days as a reason to exit or lighten-up their position. Long-sighted traders may possibly look to purchase July Platinum on pullbacks to $1,150, with a stop at $1,075 and a profit objective at $1,450.
Technicals
Technically, the July Platinum chart looks as though it could be setting-up for a possible test of April highs at 1252. At this moment, it does not appear as though the market has enough momentum to push through this relative high. The 14-day RSI is currently overbought, suggesting the market may pull back. Also, the 20-day momentum indicator is lagging behind both price and RSI, suggesting near-term weakness. Platinum must hold the $1,100 level to maintain its upward momentum or risk dropping below the $1,000 mark.
Rob Kurzatkowski, Senior Commodity Analyst
