Platinum/Gold Spread: Roll to Halloween Contracts

The Long Road

The blog is holding an unleveraged April platinum/gold spread from the equivalent of -$206.30 (premium gold).  It was originally entered in September of 2015.  Boy, it’s been a looooong year and a half.

Leveraged was briefly added in April 2016, but the ‘add-on’ investment position was liquidated just a couple of months later.  This was because the uptrend failed to materialize.

This unleveraged spread position is experimental as it deviates from our normal trading rules of getting in and then exiting if there is an adverse move.  The idea was that a mean reverting commodity spread at record lows (it hit an all-time low of -$343.30 on June 27th and then nearly matched it on October 21st when it traded to -$337.30) with a confirmation on the ratio (it registered a thirty-three year low of 0.7335:1 on October 21st) would be a temporary event.

Platinum Gold spread (nearest-futures) daily

Platinum Gold spread (nearest-futures) daily

Furthermore, platinum has been priced at a discount to gold for a record two years and two and a half months, which is substantially longer than the prior record inversion streak of one year and seven months (September 1981 and April 1983).  In terms of both price and time, the historic extremes argue that a major reversion is long overdue.

The $64,000 question, of course, is “when will it finally happen?!”

Until we get more clarity on the situation, we remain unleveraged on the position.  But once a breakout above -$200 takes place, we’ll pay closer attention.  When that happens, it will time for a challenge of the 2016 high at -$161.20.  If this hurdle is cleared, the odds are pretty good that this record bear market is finally over.  Until then, we’ll patiently roll the contracts and bide our time.

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 October platinum/gold spread at the market-on-close on Tuesday, March 28th.  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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