Platinum’s and Palladium’s Indications for Gold and Miners

Platinum and palladium had soared recently, and then they turned south – what does it mean?

Both above-mentioned white metals are now as popular as the other white precious metals – silver, and definitely not as popular as gold. And yet, they can provide us with important indications and confirmations of what’s happening in gold and silver – as long as one knows where to look.

Both markets are small, and they both have important industrial uses. Even the name of one of them “platinum” comes from the word “platina,” which means “little silver” in Spanish (“plata” is silver).

Since palladium is widely used for catalytic converters, its price largely depends on the situation in the automotive industry and vehicles production (especially in non-European markets, because there are more cars with gasoline engines), which depends on the general economic situation and the level of business activity. Actually, about 80 percent of palladium demand comes from the automotive industry. The rest of demand is generated by industry, jewelry, and investments.

As platinum is an industrial commodity, its price is influenced by the level of business activity and industrial demand. Since platinum is widely used for catalytic converters, its price largely depends on the situation in the automotive industry and vehicles production (especially in Europe, because there are more cars with diesel engines). Platinum prices are also affected by the price of palladium (its main substitute used in the automotive industry) and supply factors, especially the mining production. Since its production is concentrated in unstable emerging markets, the price of platinum is prone to price spikes due to production stoppages. Platinum prices are much more volatile than the gold or silver prices (due to lower liquidity), therefore platinum is a much riskier investment.

Technically speaking, palladium had its run several years ago, and now it’s in a long-term decline, whereas platinum has been weak for many years. In other words, in the recent past, both precious metals were weak.

 Platinum’s and Palladium’s Indications for Gold and Miners - Image 1

The above palladium chart shows how important invalidations of major breakouts are. Price tried to move above its 2020 high twice, and once it gave up, it then declined profoundly. It was just only one-third of its value at the top.

So, yes, gold’s recent invalidations of breakouts are VERY important and very bearish.

Now, since palladium was so weak, it became a prime candidate for the “weak rally” effect. By that I mean the tendency for the weak markets to soar right before tops. That’s when the investment public is buying, without paying attention to the underlying fundamentals or big trends. People buy just because something looks cheap, without considering that it might be cheap for a good reason.

This causes prices to suddenly spike, often on high volume. We see that effect in silver when it outperforms gold at the tops.

And yes, we also saw in in the palladium market. It jumped up in the previous weeks and it did so on strong volume. It now moved back lower, confirming that the move was not “real”. It was much more like what we saw in early 2022, which was when the precious metals and mining stocks topped.

The implications are – of course – bearish.

What about little silver?

 Platinum’s and Palladium’s Indications for Gold and Miners - Image 2

As platinum didn’t enter a long-term bull market in the recent years, it’s not falling back as dramatically as palladium does, but overall, we can still say that this market has been weak in the past decade, especially when compared to gold.

Platinum had a nice short-term run-up recently, and I marked similar run-ups in the recent past. Interestingly, in the vast majority of cases, those rallies preceded important tops not just in platinum, but in the rest of the precious metals market.

The early 2021 is an exception, but it’s perfectly understandable as that was the time right before the Russian invasion and since Russia is the second biggest platinum producer (after South Africa), it’s natural that the markets got concerned with supply issues. In other words, it’s an exception from the rule, not a rule-breaker.

All in all, platinum simply confirms the indications coming from palladium. Namely, that a major top in the precious metals sector has already formed. The same goes for other commodities, as many commodity stocks are pointing to lower prices in the future.

On a very short-term basis, we just saw a new breakdown in gold.

 Platinum’s and Palladium’s Indications for Gold and Miners - Image 3

Gold is after two profound weekly reversals, so it’s quite obvious that its next big move is going to be to the downside.

The initial breakdown below the rising (solid) support line confirmed that, and the current move below the short-term (dashed) support line serves as an additional confirmation of the bearish outlook.

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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief