On March 6th a buy signal was triggered for the July-June platinum/gold spread when it closed above the declining 50-day Moving Average for the first time since July and cleared a previous month’s high for the first time since early June. The blog initiated a theoretical long position at -$4.80 (premium gold).
On March 18th the position was liquidated at -$57.60 (premium gold). This is because the spread closed more than $5/oz. below the Groundhog’s Day contract low for two-consecutive days. The theoretical loss on this trade was -$5,280 per spread. Ouch!
The new contract low of -$57.60 (premium gold) sent the July-June platinum/gold spread just below key technical support at the March 19, 2013 spike low on the daily nearest-futures chart at -$55.90 and the Fibonacci .618 retracement of the entire run from the August 2012 all-time low to the May 2014 three-year high at -$56.70 (premium gold). If the bear market does not end right here, we could be looking at the psychological -$100/oz. mark for the first time in over two years.
Regardless of the fact that the initial buy signal failed, history indicates that the platinum/gold spread is still a great buy at or below the ‘even money’ mark. The spread has been below ‘even money’ for more than two months straight. Therefore, spread traders should reload and get ready for a reentry signal.
A two-day close above the declining 50-day Moving Average for the first time since last summer (the March 6th close above the 50-day MA was a one-day event) or a trade above the March 6th peak at -$4.80 (premium gold) could put the spread back on track for a major trend change. Therefore, traders can use either event as a new buy signal.
Trade Reentry Strategy:
For tracking purposes, the blog will make a hypothetical trade by buying two 50/oz. July platinum futures contracts and simultaneously selling one 100 oz. June gold contract if the spread makes a two-day close above the declining 50-day MA or a one-day close above the March 6th peak. If filled, the spread will be liquidated on a two-consecutive day close $5/oz. below the contract low that precedes the entry signal.