The big development on Tuesday was the breakout in platinum. If Tuesday’s advance above the primary 20yr downtrend is sustained, I believe an important inflection and new bull market will soon be confirmed and have had a high conviction view this would occur for some time. Tuesday’s price action seemed to confirm this.

Finally, liftoff! Platinum broke out above the primary 20-year downtrend. We need further confirmation and a sustained advance above the breakout level, with new support now defined at $1000. But the technical setup appears very encouraging.

The catalyst appeared to be a headline out of China, that the most platinum in a year was imported as a supply squeeze tightens. A report surfaced on Bloomberg that “Chinese jewellers and investors imported the most platinum in a year last month, as the precious metal’s relative stability enhanced its attractiveness over surging and volatile gold. Imports of platinum into China — the world’s biggest consumer — totalled 11.5 tons in April.” Global demand for the metal, which is also used in catalytic converters and laboratory equipment, is expected to outstrip supply for the rest of this decade.  I will cover off more on this.

According to Deng Weibin, the Asia-Pacific head of the World Platinum Investment Council, the slump in gold jewellery sales that started last year due to high prices has pushed merchants into using other metals. “Long-time gold jewellers are shifting gears to platinum products as gold has become too expensive and volatile. Platinum has come in to balance out the risks and price swings of gold.”

Platinum (and palladium) have long been correlated with gold and silver. The problem has been this historical correlation has been non-existent for much of the past 18 months since gold (and silver) broke out. A delayed reaction in terms of correlation and platinum/palladium following gold now seems to be underway.

The jump in Chinese platinum demand is recent. In the year to April 30, China’s total platinum imports actually fell 31% compared with the previous year, however, this trend has reversed recently. In the first quarter, platinum bar and coin demand in China more than doubled, pushing it ahead of North America to become the largest market for platinum retail investment. The growing demand threatens to further deplete already shrinking above-ground stocks. The market was already tightening on expectations that slowing electric vehicle adoption will keep diesel cars on the road longer — and with them, demand for platinum in catalytic converters.

Meanwhile, platinum and palladium prices are still well below levels seen in 2021 — when top producer Russia invaded Ukraine and caused a spike in metal prices. Platinum has rallied 10% so far this year, reflecting tighter supply – but I believe there is significantly more scope for upside if the technical breakout level above is sustained (my base case). Inventories have likely bottomed out and some speculative buyers have stepped in, but this could accelerate higher quickly. As one platinum dealer said in China last week “It is unusual because during the previous couple of years or so, every time the platinum price was at current levels there was very little appetite. With demand running high, the shortage is likely to persist for some time. I expect the tight supply to continue through June and July.”

My view is that there is more to the platinum breakout than meets the eye. The breakout in platinum prices provides more evidence of a growing bull market in precious metals. Platinum has been late but now joins gold & silver in a broadening bull market.

Palladium will likely soon join platinum and break above the primary downtrend and key resistance soon – see below. The PGMs miners meanwhile all had huge breakout moves in North America on Tuesday. We hold a select group of these PGM miners in the Fat Prophets Global Contrarian Fund – ASX:FPC, (which trades at a very attractive discount to NTA as per last Friday’s ASX release).

The downgrade will impact investment demand for US Treasuries, and this comes at a time when many larger buyers such as China and Japan might have moved to the sidelines. Meanwhile, China shrank its holdings of US Treasuries in March, with the UK replacing it as the No. 2 overseas owner.

The other risk facing bond buyers is that inflation could spike in the coming months from tariffs. The clock is ticking on the 90 days. The Trump Administration will likely keep much of the tariff barrier in place, which is going to lead to higher inflation.

The US Treasury Department confirmed on Friday that for the first time since the beginning of this century, China’s holdings of US Treasuries fell below those of the UK. The UK has now surpassed China to become the second-largest overseas “creditor” of the US (Japan is the largest). China’s holdings of US Treasuries by US banks and custodians fell to $765 billion at the end of March, down from $784 billion the previous month.

This change made the UK the second-largest overseas “creditor” of the US after Japan, with China dropping to third place. It was also the first time since October 2000 that the UK’s holdings of US Treasuries exceeded those of China.

With the bond market managing to shrug off the downgrade, I need to emphasise that the secular bear cycle that I see playing out in US treasuries – could take years. There is unlikely to be a defining “Minsky moment” but rather a death by 1000 cuts. The dollar meanwhile reasserted on the downside, and a move below 100 could arrest the corrective selloff/consolidation in gold (which is working off overbought conditions).

Carpe Diem

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