Platinum/Gold Spread: Roll to the April Contracts

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.

Why?!

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.

platinum-gold-spread-nearest-futures-weekly

Platinum Gold spread (nearest-futures) weekly

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.

Investment Strategy:

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.

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3 thoughts on “Platinum/Gold Spread: Roll to the April Contracts

  1. Still here and still with this trade as well. Probably the longest trade I have ever held but I still believe it will revert to at least the par level if not back to a premium one day. Been holding a core position and trading a few more on the up and down swings.

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    • Hi, Gary! I’m right there with you.

      For what it’s worth, I find that buying closes above the 30-day MA and liquidation on a break back below it has worked well in the PL/GC spread over the last year. Might be helpful for your short-term swing trading.

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      • Thanks for that tip. I fit that in and it does seem to track nicely. We just dipped below but I want to see if it’s now going to go with or recover like it did in November and cross back up.

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