Silver and platinum are both very cheap – how long can that last?

Silver and platinum are much cheaper than they ought to be, says Dominic Frisby – certainly on a historical basis. But things are starting to look good. Should you buy in?


Silver and platinum are both looking cheap
(Image credit: Copyright 2014 Bloomberg Finance LP)

In today's Money Morning we look beyond gold to consider two other precious metals: platinum and silver.

They're behaving better than they have been for some time.

Is it time to be looking at them once again?

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Gold has been struggling recently but its fellow precious metals look good

I've been pumping gold quite a bit of late. I remain of the view that dollar allowing gold could have a bit of a run here. A $100 rally to around $1,300 an ounce something like that.

There's certainly enough negative sentiment around for a contrarian rally. Whether it is regular investors in the gold exchange-traded funds (ETFs), or futures traders on the Comex, there are enough people out of the market to generate a bit of a run when they come back in. The seasonals are good. It's all set up nicely.

But, of course, gold, being gold, hasn't done what it's supposed to. In fact, every time I mention the metal it seems to have a of a sell-off, before rebounding back to where it was when I mentioned it. Last week was no different. It's most frustrating.

With all the whipsawing action over the past few weeks there is now quite a bit of resistance in the $1,210-$1,220 area that is going to take quite a bit of oomph or dollar weakness to get through. (Now I've said that, watch it rally straight through later this morning.)

It's all about the much bigger market that is the US dollar, of course.

Platinum and silver have, however, been behaving rather better.

When I say rather better, I mean over the last three weeks or so. Over the last ten months, platinum has been awful. Having been as high as $1,020 per ounce in January, 2018 has been a year of almost relentless selling for platinum. In August it sunk below $760 the lowest it had been since the financial crisis of 2008 and, before that, since 2004.

I'm of the mind that platinum is cheap even at $1,000, so to see it touch $750 is extraordinary. I keep banging the table about this because I know I'm right. It's the markets which are wrong not me (!).

Platinum "should" be 1.25 times the price of gold. If gold is $1,200, platinum "should" be $1,500. That's the normal ratio between the two metals. But between one thing and another the platinum price has been driven down, down and down.

I'm convinced, by the way, that the biggest factor has been the Volkswagen diesel scandal of several years back, and the change in perceptions of diesel engines that resulted. Platinum's main use is in catalytic converters. Less diesel engine use equals lower platinum demand.

Not that explanations matter, of course, until it's too late.

As Jesse Livermore said: "Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore. It doesn't go into explanations. The reason for what a certain stock does today may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now not tomorrow. The reason can wait. But you must act instantly or be left."

However, since that extraordinary low in August, a nice little trend has developed in platinum and we are up about $80, albeit off deeply oversold levels. It may have behaved far worse than gold for most of 2018, but it is behaving slightly better now.

Silver has been trading close to 2006 levels

Silver is an odd one. But we all know that. Having spent the spring range-trading between $16 and $17 itself a price I would see as too cheap, were it not for the fact that it's silver and "anything goes" it broke support in June, as the US dollar rallied, so that by August it hit a high of $14.40.

Then in September it made an even lower low $13.97, according to my software. I can remember buying silver at $13 in 2006! But since then, like platinum, it has been creeping up quite nicely. Yesterday it flirted with $15, before closing the day around $14.70.

They've both been behaving better than gold, in other words. But that's only because they have both been far worse.

But, in precious metals bull markets, platinum and silver have a tendency to lead gold. They are the more inflationary metals. So that is a good sign as far as my "gold-is-going-to-rally-$100-before-next-spring-theory" is concerned.

There is no doubt in my mind that, on a historical basis, both platinum and silver are cheap. I am sure that in five years' time, somebody who looks back at silver bought today below $15 and platinum below $850 will have a smile on their face.

The problem is can you ride out the volatility in the interim? Not easy to do, particularly if you use leverage.

Just as bull markets have a tendency to overstep the mark to the upside, so bear markets go too far on the downside. Prices get absurd both ways. Could silver and platinum go lower? Almost certainly. This is a bear market. Prices go lower than you think possible. Have we just seen the lows in both? That's a possibility too, even a likelihood.

But the bottom line is that nobody knows, and nobody will know until it's too late.

I do, however, know this: both silver and platinum are cheap. That's not to say they can't get cheaper but the rallies they are currently tracing out bode well for now.

Dominic Frisby

Dominic Frisby (“mercurially witty” – the Spectator) is, we think, the world’s only financial writer and comedian. He is the author of the popular newsletter the Flying Frisby and is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. 

His books are Daylight Robbery - How Tax Changed our Past and Will Shape our Future; Bitcoin: the Future of Money? and Life After the State - Why We Don't Need Government. 

Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art. You can follow him on X @dominicfrisby