Platinum shines strongly among precious metals

Platinum develops better than gold in percentage terms. But whether this is going to continue in the coming weeks and months will depend largely on the development of the automotive industry. The sales figures show strong gains in the first quarter and the results were better than expected. However it is questionable, whether the car shares rise more strongly, as they are already clearly overbought. If auto stocks correct in line with the overall market, then this should also have a negative impact on the relative performance of platinum over gold.

We have in this blog several times already criticized the German Federal Government, in particular Chancellor Angela Merkel, for the policy in the Greece-crisis. The always hesitant attitude and vague statements have given Greece no rest and relaxation on the financial markets, but only exacerbated the crisis further. Also, it was not a smart idea from the Chancellor involving the IMF in a rescue operation for Greece. Fueled by statements of some U.S. economists this has only exacerbated the fear of Greece declaring state bankruptcy. This has weighed on Gold as new lows in the EUR/USD exchange rate are negative for gold. Another negative factor in the previous week was the SEC action against Goldman Sachs, which has reduced the risk appetite of investors and also the precious metals suffered under increasing risk aversion.

The platinum group metals are not spared of the negative developments in the foreign exchange markets. But the industrial use of the PGMs for catalysts in the automotive industry plays also a significant role and at present offsets the impact of the EUR/USD exchange rate. With the start of the global economic crisis in the autumn of 2008, which was triggered by the financial crisis and the bankruptcy of Lehman Brothers, some countries have established incentive programs for the purchase of new cars (scrapping premium in Germany, cash for clunkers in the US). Automotive experts, such as Professor Ferdinand Dudenhoeffer (a “leading German expert”), had criticized such programs as ineffective, indeed even as harmful to the automotive industry. After the expiry of the incentive program, there would be a massive slump in demand for automobiles, which would not only delay the crisis but would even make it more severe.

But it came back a different way than the professorial experts had predicted. Although the sales declined slightly after the expiry of the programs, but in most countries car sales in the autumn of 2009 were higher than the year before. In particular, the car sales have risen considerably in China. This shows the success of the Chinese government’s policy to boost domestic consumption. Thus, even automotive brands, which have benefited little from the incentive programs, could increases car sales significantly. Last week, some automobile companies exceeded expectations considerable and reported surprising results for the first quarter of 2010. This argues for a further advantage of platinum compared to gold in the short run. 

The chart shows the ratio of gold to platinum price. A falling ratio means that platinum performed better than gold that is either increases stronger or decreases slower in percentage terms. In the previous week, this line has reached its lowest level since September 2008. At the same time, this represents a correction to the 61.8% increase from June 2008 to peak in December 2008. This Fibonacci correction is seen from a chart-technical point of view as a critical level. If the ratio of the gold and platinum price could continue to decline, then the low of June 2008 might be reached again as a target, suggesting a still significant potential for better performance of platinum. But in the case that the line does hold at that mark, then gold should receive sufficiently strong support and could perform better. At the same time, the chart shows the price of Daimler shares (other European car shares, with the exception of the Volkswagen Group would show a similar development) with an inverted left-hand scale. It is striking that platinum often performed better than gold when the Daimler share price has increased. After an increase of around 30% in two months, the stock is now clearly overbought. The international stock markets are overbought after two months' rise, too. The risk of a correction in equity markets has therefore increased significantly. And the case of Goldman Sachs shows how nervous investors are and how quickly risk aversion can rise. Falling stock markets, especially in automotive stocks would thus also be a negative signal for platinum, which should then perform worse than gold.