Platinum on Course for a Bullish Run in 2021

Jan 8, 2021 04:13 PM ET
Platinum on Course for a Bullish Run in 2021
  • Platinum futures are on course for a 52-week high, beating the 5-year record set in July 2016.
  • South Africa's mining stocks were up in the first week of trading in 2021, owing to a robust gain in the JSE.
  • Platinum is enjoying supply mechanisms improvement as miners introduce fully-automated systems to meet the strong demand for autocatalytic converters.

Platinum prices hit the highest level on January 5, 2021, at $1,095.45 since July 2016, when it hit a five-year high at $1,152.90. The current status is close to the 52-week high when it touched $1,141.90 per ounce, indicating intense bullish levels in 2021.

Platinum prices chart

The price increase has been spearheaded by the ease of transport restrictions, especially in South Africa. As a compliment metal mined alongside Palladium, Platinum has boosted the former's increase in price in the catalytic conversion business. The dollar's weakening is also pushing investors to look to alternative stores of value such as gold, silver, and platinum.

South African Benchmarks

South Africa’s FTSE/JSE All-Share Index gained 0.5% on January 4, 2021. Mining stocks in the country were up in record numbers.  Out of 41 indices, 16 had positive margins indicating robust growth signs into 2021. Spot platinum attained a record high since 2016. Mining company Impala Platinum Holdings Ltd and gold miner Anglo Ashanti Ltd also registered substantial gains since December 2020.

The ease of transport restrictions made South Africa's rand to jump 0.8% against the dollar to stand at 14.5465. The country's mining groups got a boost from the rise in commodity prices. This increase has coincided with the technologically innovative systems in the country that seek to improve production.

South African mining companies account for more than 75% of the global Platinum reserves. This amount also corresponds to 40% of the Palladium reserves found globally. Additionally, South African mining companies have also invested in top-of-the-range mining equipment that would reduce production downtime. Towards the end of 2020, Platinum miners installed fully-automated cranes to improve the metal’s production.   

Demand boost

Industrial demand for platinum has grown, especially in the automotive sector as catalytic converters. Unlike palladium that is used in gas-powered engines, platinum is used in diesel-powered vehicles. These two metals are used to reduce harmful emissions from car exhaust pipes that lead to air pollution. In terms of physical demand, platinum has the edge over palladium. It is used in autocatalytic converters and also in the making of jewelry.

Platinum is facing a rough patch, with diesel-powered cars' production set to be halted shortly. States like Massachusetts have announced a ban on the production and sale of new-gas-powered vehicles by 2035. The prohibition of gas-powered engines is expected to affect the supply and demand of palladium. This situation will likely see a decrease in production and supply of platinum mined alongside the metal.  There are no alternatives to fossil fuels meaning that platinum has a lifeline in diesel engines' generation.

Technical Analysis   

 relative strength index (RSI) of platinum

The 14-day relative strength index (RSI) of platinum stood at 66.62 as of January 5, 2021. The index neared the 70th mark meaning it is close to the overbought zone. Investors have increased buying activity of the commodity, indicating the metal is on a bullish rally. The average directional index (ADX) was 30.766 showing strong growth in momentum. The ultimate oscillator was also robust at 53.947. These indices support a buy position of the metal. The 50-day moving average found support at 1088.18 (simple) and 1084.19 (exponential). On January 5, 2021, platinum futures were on course to maintain 1095.60 positions. The SMA and EMA both support a bullish run for the commodity and a buy position.

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