TALKING TECHNICALS

As platinum rises, it seems some substitution is starting to occur

As platinum rises, it seems some substitution is starting to occur

The prices of platinum and palladium have diverged considerably over recent years. Platinum peaked at $2,200 in 2008 and dropped to below $800 recently. Palladium bottomed out in 2008 at about $160 and has recently reached a peak of $1,540.

The price of palladium has surged over the past eight months. In August 2018, it was near $800 an ounce. The near doubling of the price since then has grabbed headlines. But the noise is often the loudest at the extremes, and the hype over palladium when it was around $1,500 was no exception.

That was what drove some to suggest that palladium was a bubble waiting to pop. The most notable of these was Anglo American CEO Mark Cutifani, who made a passing remark in mid-March that palladium was an unsustainable bubble. When the CEO of a mining house that produces the stuff suggests it is a bubble, it’s worth listening and it seems the market did exactly that.

The words were barely out of Cutifani’s mouth when the palladium price plunged more than $200 in a week. That selloff has done technical damage to the palladium price chart recently and most likely sets in motion a period of consolidation in the price that may last months. The break below $1,500 for palladium ends the steep upward trend that had been in place since August, just after the blow-off move to the

upside. When a trend steepens and steepens as had been the case with palladium, the first crack to the downside is usually violent, then further gradual weakness follows. Any bursting bubble exhibits these characteristics. So if palladium follows that path, further gradual weakness in the price is likely in the coming months.

While the palladium bubble has been bursting, platinum seems to have sprung to life. This prompts the question whether some substitution between these two platinum group metals is starting.

The price of platinum had been in the doldrums, below $880 resistance, for most of the past year. Several attempts to break above $880 had been unsuccessful in recent months. But a base was forming. Higher lows since August had begun to indicate that the price was bottoming out and building a stage from which it would eventually break higher.

The break above the downtrend and above the 200 displaced moving average at $830 in February was the first sign that buyers were starting to step up. Soon after, the 50-day moving average crossed above the 200-day moving average to mark a golden cross buy signal. In April the price has broken above the $880 resistance level convincingly. That break above lateral resistance at $880 confirms that the low is probably in for platinum and there is likely to be further upside in the coming months.