Platinum/Gold spread: Let’s Roll!

Where We Stand

The IMC blog is holding an investment position in the April the platinum/gold spread from the equivalent of -$199.90 (premium gold). Initially, it was bankrolled with $113,000.

At the end of December, we doubled up on the position. Just a few days later, we liquidated the ‘add-on’ position with a loss.

This leaves us in the initial spread position, but the loss caused our bankroll to drop to $107,560.

Beat the Clock

The First Notice Day for the April metals contracts is at the end of the month. It’s still a couple of weeks out, but we’re going to go ahead and roll to the summer contracts now.

We are now going to get positioned into the July-August platinum/gold spread. That way, we don’t have to worry about rolling again until we reach the midpoint of the year.

The ‘Add-On’ Parameters

The spread clipped the 100-day MA on December 31st, but it was a one-day wonder that marked the end of a sucker’s rally.

Once the New Year began, the spread wasted no time heading to new multi-year lows and new record lows followed.

The nearest-futures platinum/gold ratio hit a multi-decade low of 0.74:1 on January 20th. This is within close striking distance of the record low of 0.69:1, which was set back in October 1982.

We know this spread –and its ratio- is ridiculously cheap. But Keynes warned us a long time ago that “The market can stay irrational longer than you can stay solvent.” This certainly applies to the relationship between the platinum and gold markets!

Platinum Gold spread (nearest-futures) daily with the 100-day MA

Platinum Gold spread (nearest-futures) daily with 100-day MA

To double up again, we’d like to see the platinum/gold spread make a two-day close above the declining 100-day Moving Average for the first time since the summer of 2014. We’re waiting for the same trigger point to reenter a speculative long position as well.

If we continue to manage risk -meaning that we use proper position-sizing and not getting over-leveraged- the platinum/gold spread will eventually reward our efforts. Keep the faith.

Investment Strategy:

For tracking purposes, the blog will liquidate the long April platinum/gold spread investment position and simultaneously enter a long investment position in the July-August platinum/gold spread at the market-on-close on Tuesday, March 15th. Currently, there are no liquidation parameters for this low-leverage position. It is being bankrolled with $107,560.

Also, double the position size of the investment if the July-August platinum/gold spread makes a two-day close above the declining 100-day MA (currently around -$231.00). If filled, liquidate the ‘add-on’ position if the spread makes a two-day close below the 100-day MA.

Speculative Strategy:

Cancel the orders to buy the April platinum/gold spread and replace it with the following:

Buy two 50/oz. July platinum futures contracts and simultaneously sell one 100 oz. August gold contract if the spread makes a two-day close above the declining 100-day MA (currently around -$231.00). If filled, exit on a two-consecutive day close $5/oz. below the contract low that precedes the entry.

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