FOCUS: Fears of Double-Dip Recession Keep Lid on Platinum Prices

19 July 2010, 3:35 p.m.
By Debbie Carlson
Of Kitco News

Chicago -- (Kitco News) --Soft spots in recent U.S. economic reports have stoked concerns about a double-dip recession in the world’s largest economy, chilling investment in the platinum group metals as well as in other asset classes.

According to Morgan Stanley research, spot platinum is down 1.6% quarter to date (spot platinum is currently $1,507 and remains up 3.0% on the year) and Monday’s weakness stems from follow-through selling from Friday's disappointing economic forecasts, said David Meger, director of metals trading at Vision Financial Markets.

U.S. economic reports suggest a slow down in the growth, with recent manufacturing data less robust than before and housing data sluggish. Inflation data has been flat to slightly negative, causing some market watchers to wonder if deflation is around the corner. China’s economy is also cooling, so bears seem to be in control.

“Platinum prices are susceptible to another wave of selling as the market is focused on the possibility of a double dip recession. However, a break below $1,500 support may be contingent upon further negative economic data,” said Ralph Preston, futures analyst at Heritage West Financial.

Meger said an investor’s outlook for the economy will likely color his or her view for platinum prices. “It’s predicated on your outlook for a double-dip recession,” he said. “We don’t see a significant double-dip.”

A return to recession would hit all commodity prices across the board, not just platinum, as demand for resources would suffer.

Meger said longer-term the prospects for platinum prices are higher, given the recovery in auto sales. Platinum is used in catalytic converters.

He also noted that platinum could be lagging right now because there hasn’t been much fundamental news to support it and that seasonally, this is a slow time for all precious metals. He expects prices to pick back up in the late summer/early fall into the year’s end.

At the $1,500 area prices seem to have reached equilibrium for now

Standard Chartered bank said in a research note that platinum should remain supported on breaks, with lower prices finding willing buyers. “Look for pullbacks to be followed by a rally,” the bank said.

Platinum is trading under the 50% Fibonacci retracement level of $1,526 measured from the high of $2,290. It sees support at the February 2010 low of $1,460. If platinum can rally above $1,545, the first likely resistance level, Standard Chartered said prices could catapult to $1,625.

Morgan Stanley’s Hussein Allidina, head of commodity research, said in a research note he sees PGMs outperforming gold and silver and should continue to receive support from bargain hunters. The firm’s 2010 outlook for platinum is $1,653 and sees it at $1,675 in 2011.

Preston said if there’s enough momentum to push prices below $1,500 support comes in at this year’s low of $1,473 while a close over $1,529 is needed to blunt bear forces.


By Debbie Carlson, contributing to Kitco News;