Idea of the Day Zimbabwe fears and the Platinum price

What: The platinum price shot higher today after a coup in Zimbabwe, which is the world’s third largest platinum producer. However, after rising some 1.5% it has since given back 1% of those gains as commodity traders appear comfortable with the situation.

Today’s price action gives us an insight into what the market thinks about the coup in Zimbabwe and the likely end of the Mugabe era. Firstly, markets seem to be expecting a relatively calm and peaceful transferal of power now that the dictator is under house arrest and his wife has reportedly fled the country. Secondly, it suggests that investors are not concerned about the potential disruption to production in the Zimbabwean mines, after all, could anything be worse politically and socially in Zimbabwe than it already is? Lastly, as fears about the coup and its impact on platinum production have eased other factors have come into play, such as a weakness in the overall commodity space in recent days and some technical factors, which is weighing on the price of the metal.

How: As long as there is a peaceful handover of power and the situation in Zimbabwe does not deteriorate into violence or civil war, which we think is unlikely, then the price of platinum may struggle in the coming days. We think that selling pressure in platinum could build if we approach the highs from today around $939 per ounce, which also corresponds with the 50-day moving average. Buying pressure may not build until we get back to Tuesday’s lows around $925, this level should attract some decent buying interest especially if there is any confusion around who is in control of Zimbabwe in the coming days. In the worst case scenario if there is an outburst of violence in the coming days then get ready for another sharp surge in the platinum price and  $975 ahead of $1000 per ounce comes into view on the upside.

Chart 1: 

Source: City Index and Bloomberg