The Long Road
In September of 2015, the IMC blog bought an unleveraged platinum/gold spread at the equivalent of -$201.20 (premium gold).
We added leverage in April 2016 when we purchased an ‘add-on’ investment position, but the spread moved adversely and knocked this one out a couple of months later.
So far, this position has not made us any money. But we will continue to pursue it.
First of all, commodity spreads show a strong tendency of mean reversion over time. The platinum/gold spread is no different.
Secondly, the spread has set new records in terms of both price and time this year. Since it’s a mean-reverting spread, the new price and time extremes should only increase the probabilities of a severe snapback in the future.
On June 27th, the platinum/gold spread sank to an all-time low of -$343.30 (premium gold). It then came close to matching it on October 21st when it hit -$337.30 (premium gold). Interestingly, the platinum/gold ratio touched a thirty-three year low of 0.74:1 on June 27th and then hit a slightly lower low of 0.7335:1 on October 21st. The ratio hasn’t been down there since October of 1982.
In terms of time, we are only three weeks away from marking the two-year anniversary of platinum trading at a discount to gold. This broke the previous record inversion streak of one year and seven months that occurred from September 1981 and April 1983.
So even though the platinum/gold spread has not performed for us yet, we will continue to exercise patience and money management so we can stick to the original plan. It’s nothing more than a waiting game right now.
For tracking purposes, the blog will liquidate the long January-February platinum/gold spread investment position and simultaneously enter a long investment position in the April platinum/gold spread at the market-on-close on Tuesday, December 27th. There are currently no liquidation parameters for this low-leverage position. Factoring in the results of one ‘add-on’ investment position, the bankroll for this spread is currently $101,920.