Platinum An Undervalued Long Looking at platinum, particularly the physical platinum ETF AMEX:PPLT , AMEX:PPLT there are several technical and fundamental factors that make me bullish on this often-overlooked metal.
Precious Metal Rally: Precious metals like gold, silver, and even non-precious metals like copper have been experiencing significant gains. This rally coincides with bets on the Federal Reserve cutting interest rates due to signs of a cooling economy, which can benefit metals as a non-yielding asset class. The global uncertainty surrounding conflicts in the Middle East and the ongoing Russia-Ukraine war further strengthens the case for precious metals as a safe haven investment.
Falling 10-Year Yield: The benchmark 10-year Treasury yield seems to be breaking down after recent economic data pointed towards a potential slowdown. For instance, the JOLTS job data showed fewer job openings than expected, and PCE (Personal Consumption Expenditures), the Fed's preferred gauge of inflation, met expectations. While manufacturing has slowed down, the business services sector remains robust. Rising jobless claims in recent weeks can also signal an economic slowdown. The non-farm payrolls data, due for release tomorrow (June 7, 2024), will be a key indicator of the U.S. job market's health. Any signs of significant cooling could influence the Federal Reserve to cut interest rates, potentially fueling demand for non-yielding metals as investors seek alternatives to bonds.
Weakening Dollar: The dollar experienced a breakout on the daily chart but appears to be rolling over, likely along with the 10-year yield, as U.S. economic data cools. A weaker dollar can be bullish for metals as it reduces the purchasing power of the dollar, making precious metals a more attractive investment for wealth preservation purposes.
Platinum: The Laggard
One of the key reasons for my bullish sentiment on platinum is its apparent discount compared to other precious metals like gold and silver. Platinum has consistently underperformed for years due to its relative obscurity. However, I believe that recent technical and fundamental developments are creating a compelling opportunity for platinum to catch up and reclaim its status as a valuable precious metal. The chart below compares platinum to gold and silver.
(Blue Line - Platinum, Orange Line - Silver, Light Blue Line - Gold)
As you can see, platinum has lagged behind silver and gold for years, presenting a potential value opportunity to invest in precious metals without entering at all-time highs.
Bullish Technicals: Looking at AMEX:PPLT , the physical platinum ETF, we can see that it briefly experienced a breakout of the weekly downtrend resistance zone. However, it has since pulled back due to being overbought during the initial breakout, as indicated by the RSI reaching 80 and the Commodity Channel Index (CCI) displaying an overbought reading. Since then, the price has held at a previous resistance point, potentially transforming it into support. The 50-day moving average also provides additional support, suggesting a potential for a higher low and a continuation of the upward trend. This pullback has allowed the platinum market to cool off after the initial overbought surge, and with the RSI now at a neutral level and the CCI significantly lower, the market may be poised for further gains.
Overall, I remain bullish on platinum due to a combination of fundamental and technical factors. These include a cooling economy that could lead to lower yields and a weaker dollar, both of which benefit metals. Additionally, platinum's underperformance compared to gold and silver presents a potential catch-up opportunity. Finally, the bullish technical indicators on the AMEX:PPLT chart support my long position on platinum.
AMEX:PPLT NYMEX:PL1! TVC:PLATINUM
