Platinum/Gold Spread: Bullish Trend Change…Finally?!

Trend Reversal Signal

For the first time since the summer of 2014, the platinum/gold spread made a two-day close above the declining 100-day Moving Average.  This triggered another potentially bullish trend change.

On April 14th, the blog hypothetically bought a pair of 50/oz. July platinum futures contracts at $992.90 and simultaneously sold one 100 oz. August gold contract at $1,228.10 for a speculative long position and as an ‘add-on’ to the long investment position.  This put the spread entry price -$235.20 (premium gold).

Platinum Gold spread (nearest-futures) daily

Platinum Gold spread (nearest-futures) daily

The speculative long position will initially be liquidated on a two-day close below -$321.50 (premium gold), which is $5/oz. below the current contract low.

The ‘add-on’ investment position will initially be liquidated on a two-day close below -$284.20 (premium gold), which is the current low of the month.  Initially, we were going to give it a shorter leash of a two-day close back under the 100-day MA, but we’ve decided to give it a little more breathing room.  This is partly because the platinum/gold ratio is holding above the 100-day MA even better than the spread is.  (A hat tip to Alex for pointing that out).  However, we may tighten the exit criteria if the spread fails to gain more ground by the end of the month.

One for the Record Books

We keep pounding the table about the fact that the platinum/gold spread is overdone in terms of both price and time.  We believe that, based on history, this spread will pay handsome dividends on the long side for those who have the bankroll and the patience to pursue the long side.  But so far, this belief has been based on faith and not evidence.

Still

The January 20th multi-decade low of 0.74:1 put the platinum/gold ratio right on the doorstep of the October 1982 record low of 0.69:1…

While the new record low of -$315.50 (premium gold) that occurred in the spread on March 3rd was not confirmed by a new low in the ratio…

And the current inversion has now been stretched to duration of one year and three months, making it the second-longest inversion in history.  The only inversion that lasted longer was the one year and seven-month run between September 1981 and April 1983.

Platinum Gold ratio (nearest-futures) daily

Platinum Gold ratio (nearest-futures) daily

Given the record extremes of this bear market, we expect that the pendulum will inevitably swing into a substantial bull market.  Therefore, we will be watching for setups to add to both the speculative and investment positions once the bull market finally materializes.

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