Platinum recently entered into its annual period of seasonal strength. What are prospects this year?
Thackray’s 2012 Investor’s Guide notes that platinum has a period of seasonal strength from January 1st to May 31st. The trade has been profitable in 20 of the past 25 periods. Average return per period was 9.0 per cent. The trade also outperformed gold during the period by an average of 6.9 per cent.
Seasonality in platinum is influenced by demand by the jewelry, consumer electronics and auto industries. Jewelry represents about 40 per cent of demand and the auto industry takes about 37 per cent. Incremental demand during the period of seasonal strength mainly comes from the auto industry. Platinum is an important component in catalytic converters that control exhaust emissions. The traditional auto buying season is from February to May.
The outlook for the auto industry in 2012 is encouraging. U.S. buyers bought 12.8 million vehicles in 2011, a gain of 10 per cent from 2010. Growth in Canada was less impressive. Canadians bought 1.586 million new vehicles in 2011, a gain of only 2 per cent. The industry is predicting another 10 per cent gain in U.S. new vehicle sales in 2012 to 14.0 million. A 10 per cent gain in Canadian new vehicle sales in 2012 also is possible. Growth in international markets other than Europe is expected to be more significant. New vehicle sales in China exceeded new vehicle sales in the U.S. in 2011 for the first time and are expected to accelerate as the Chinese government reduces lending restrictions. New vehicle sales and production in Japan are expected to recover following the tsunami crisis in March 2011. New vehicle sales in other Asian markets and South America also are expected to record significant gains.
On the charts, platinum has a negative, but improving, technical profile. Intermediate trend is down. The commodity trades below its 50- and 200-day moving averages. However, seasonal influences became apparent slightly earlier than usual this year. Platinum reached an intermediate low at $1,347.60 (U.S.) per ounce on December 29th, 2011. Earlier this week, it completed a bullish, short term, reverse head and shoulders pattern. Short-term momentum indicators (Stochastics, Relative Strength Index and Moving Average Convergence Divergence) have recovered from oversold levels and are trending higher. Platinum also began to outperform the S&P 500 index at the end of December.
Investors can participate in prospects for platinum by owning exchange traded funds. Top choice is ETFS Physical Platinum Shares . Units trade at approximately the price of platinum and are backed by physical metal. An alternate choice that also is backed by physical metal is ETFS White Metals Basket Trust . The trust holds a basket of precious metals weighted 55 per cent silver, 33 per cent platinum and 12 per cent palladium. Another alternative is iPath DJ-UBS Platinum units . Units are backed by platinum futures contracts.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst for JovInvestment Management Inc. All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by JovInvestment. JovInvestment is the investment manager for the Horizons family of ETFs. Daily reports are available at http://www.timingthemarket.ca/
- NYMEX PLATINUM FUTURES CHAIN Front M$1.05K+25.50(+2.49%)
- Gold Front Month Futures$1.27K+20.50(+1.64%)
- Etfs Physical Platinum Shares$101.25+2.46(+2.49%)
- Barclays Bank iPath Bloomberg Platinum Subindex Total Return $22.72+1.24(+5.77%)
- Updated April 28 1:28 PM -4GMT. Delayed by at least 15 minutes.