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Does the Crisis in Cyprus Put the Platinum Market at Risk?


The platinum-gold ratio tends to move in tune with the general stock market.

No one knows what will happen next, but none of the options are pretty. Cyprus's debt-to-GDP ratio pushed to 127% in the third quarter of 2012. Only Greece (at 153%) has a higher level. It is politically difficult to persuade German taxpayers to finance a bailout of an off-shore money heaven for shady deposits, and can you blame them?

So either Russia will come to the rescue with a fat check, or EU officials will relent when faced with the prospect of a Cypriot exit from the eurozone. Another possibility might be that the Cypriots tax the big accounts and spare the small, mostly local savers. Cyprus has no central bank to prop up its banks like a non-eurozone country does. So the last option is for Cyprus to exit the eurozone and to start printing its own currency.

Without a doubt, the Cyprus crisis is putting a spotlight on the general disillusionment with the European unification project.

Let's move on to today's technical portion to see whether the Cypriot events have had any influence on the general stock market and platinum (keeping in mind that platinum tends to outperform gold when stocks are rallying).

We'll start with the S&P 500 Index (INDEXSP:.INX) long-term chart. (Charts are courtesy of

Click to enlarge

The situation is much the same as last week here, as there has been insignificant reaction to the situation in Cyprus. It seems that investors do not view the situation as being important, but I think that it is – and I think that the true impact upon the general stock market is likely still ahead. Technically, the situation in this chart improved this week. RSI levels no longer suggest an extremely overbought condition, so higher stock prices could very well be ahead. Once again, Cyprus could be the game changer depending on what happens and how quickly the current situation is resolved.

Let's turn now to the financial sector. We'll use Broker/Dealer Index (INDEXNYSEGIS:XBD) as a proxy here.

We see that the financials have managed to hold above the 2012 high despite the Cyprus events. This is a positive sign, but with RSI levels close to 70, further consolidation could follow anyway. If we are correct about the Cyprus's impact still being ahead of us, then financials will likely move lower in the coming weeks.

Finally, let's move on to the platinum to gold ratio.

Click to enlarge

On the above platinum to gold ratio chart, we see that the ratio moved below 1.0 this week but reversed almost immediately. It is now quite close to this very important support-resistance line. At this time, I view this recent move as a rather insignificant phenomenon, but I will continue to monitor the situation here closely, for if stock prices decline, the platinum market could be vulnerable. The outlook for this ratio still appears to be positive at this time, but keep in mind my comments from Wednesday:
The situation does look concerning for the platinum market as the platinum:gold ratio moves closely in tune with the general stock market -- and the positive outlook on the stock market was one of the factors that made us suggest moving from gold to platinum in the previous months. However, Cyprus could be a game changer. It's too early to tell if this should impact your platinum-gold selection, because there's not enough data and because of the plain fact that platinum is once again priced lower than gold, which is a 20+ year anomaly.

Summing up, from a technical perspective, the situation in the general stock market improved this week. Stocks consolidated a bit and held relatively well as did the financials. From a pure technical perspective, I should be bullish here but would rather call the situation unclear, because the market appears to have not yet realized the true situation in the Mediterranean Sea. This outlook translates directly into platinum market, as the platinum-gold ratio tends to move in tune with the general stock market.

For the full version of this essay and more, visit Sunshine Profits' website.

Twitter: @SunshineProfits

Also see:

As Market Correction Looms, Investors Face Three Choices

What's Behind China's Global Oil and Gas Buying Spree? And Who's Next?

Should Natural Gas Prices in Europe and Asia Be De-Linked From Oil?
No positions in stocks mentioned.
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