Platinum/Gold Spread: Entry Signal Triggered

The Long-Awaited Turnaround…Or Just Year-End Position Squaring?

Yesterday the April 2016 platinum/gold spread closed above the declining 75-day Moving Average for the second day in a row. This was the first such occurrence since the summer of 2014 and could indicate the beginning of a bullish trend change. Therefore, the IMC blog initiated two positions at yesterday’s closing price of -$176.50 (premium gold):

First, the investment position that was entered at the equivalent of -$199.90 (premium gold) on September 23rd with a bankroll of $113k per spread was doubled in size. The initial position has no stop because of the sizable backing, but the second ‘add-on’ position that was added yesterday will be liquidated on a two-day close back below the declining 75-day MA.

Second, a speculative long position was entered as well. This initial position will be liquidated on a two-day close below -$237.30 (premium gold), which is $5/oz. below the current contract low.

Waiting for Confirmation

On the one hand, the two-day close above the declining 75-day MA is a bullish event for the platinum/gold spread. On the other hand, the fact that it occurred in light trade where end-of-year position squaring dominates the trade makes us a little less than enthusiastic.

Platinum Gold spread (nearest-futures) dailyFurther upside next week would indicate that the move is genuine and a strong breakout above the November 6th high of -$149.10 would go a long way in bettering the odds that this turnaround is the real deal. The seasonal pattern backs this scenario as the spread usually strengthens into late January. From a technician’s perspective, it would certainly be gratifying to see the bear market that started from the 2014 double top end at the current 2015 double bottom.

In just a couple of weeks, the inversion of the platinum/gold spread hits the one-year mark. This is the third-longest inversion in forty-five years of price history. If it does not reverse by St. Paddy’s day, the duration of the inversion will tie for second place. Time is running out for this bear market.

Planning Ahead

In the event that the platinum/gold spread has finally started a new bull market, we have lots of upside potential from here. If so, we want to take full advantage of the move and squeeze out as much profit as we can. We have to be smart about it, though. Therefore, we will be watching the price structure and monitoring the volatility as prices rise in order to find setups for more ‘add-on’ positions.

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