Artificial Intelligence for Better Financial Decision Making
Once in a while an opportunity comes along in the markets where the dislocations are so extreme
and compelling that it commands one to take a calculated risk. Anytime you can say, "This is among the cheapest this asset
has been in history", there is typically a fantastic contrarian play at hand.
In February of 2016 the price of WTI Crude Oil hit ~ $25/barrel. On an inflation adjusted basis, this was among the cheapest oil had been in recorded history. I was working in the Oil Industry at the time doing engineering management, and during a lunch with the President of our company I told him I was going to buy a lot of energy equities on that fact alone. Considering the sentiment at the time (atrocious), he was skeptical. Six weeks later I had doubled my money.
Click here now. The same situation is developing in the Platinum market. This plot shows the $USD close of Platinum, with the Platinum/Copper and Platinum/Gold ratio. Platinum is at $805 as of this writing, and on an inflation-adjusted basis is among the cheapest Platinum has been in history. Priced in Gold, this the cheapest platinum has ever been. Priced in Copper, Platinum hasn't been this cheap since 1977. The same is true of the Platinum/Silver ratio which is languising near lows last seen in 2012, and then the 1980's before that. The Platinum/Palladium ratio is as extreme as the Platinum/Gold ratio, which is almost tied for all-time lows for the entire price history dating back to the 70's. Priced in units of the S&P 500 it's also languishing at the cheapest in history.
So what's happening here? Some make the (valid) argument that shifting auto demand from combustion vehicles to electric vehicles is forcing the market to reprice the value of Platinum relative to other assets. This is fine, and I tend to agree with this assessment. However, the adaptive and non-stationary aspect of markets needs to be respected. Platinum has inalienable properties that make it a fantastic input to a lot of products and processes. The simple fact that Platinum (and Gold) are immune to oxydative damage means that if they were cheap enough we would use them in everything where a certain degree of robustness and longevity is required. In other words, at some point new use cases for Platinum will emerge that are economically viable at these price levels. This will drive a mean-reversion relative to other assets over the long-term.
Technically, Platinum is sitting right at major support that held during the 2008 crash and the 2015 low. It remains to be seen if a double-bottom will form here, or if the market will break support and jolt lower. The essence of speculation is buying what nobody wants, and selling what everybody wants. I think investors or speculators with the luxury of time would do well to accumulate platinum-based assets at this juncture.
As a matter of disclosure, we currently do not own any positions in Platinum or Platinum miners directly. We do plan to take long-positions in PPLT within the next 1-3 months.
Happy and prosperous investing!