Yesterday, in Using Metals to Trade Both Sides of Inflation, we noted that the dynamics of inflation were multi-faceted. Rising inflation would be positive for economic growth, job creation and employment as well as overall spending, fueling ongoing cycles of expansion. As such, trading copper—which rises on healthy economic growth—was the focus of our piece.
But if inflation overheats, prices could escalate too quickly, pressuring corporate profitablilty, employment and consumer spending, so that ultimately the economy spirals downward. Should that occur, a more appropriate metal to keep an eye on is platinum. Many consider the precious metal a safe haven hedge against rising inflation.
In truth, both trades can hedge each other, though given a trade’s sensitivity to time and demand, it's easy to lose on this dual pairing if not handled carefully.
On the other hand, platinum is in the unique position of having double utility; it can be profitable as a haven and also as a commodity that's much sought after on improving industrial demand, since it's a key ingredient in fuel cells and clean energy.
Also, gold relative to platinum, is currently trading at 1.5 times the price. Given that the two historically trade at parity, we can expect to see platinum rise versus gold. And while platinum recently reached a six-year high, gold went parabolic last year to hit an all-time high. Now, while gold is in a downtrend, platinum is in an uptrend.
Platinum Daily