The blog has been sitting with an unleveraged platinum/gold spread since September of 2015. We’re running this position as an “investment”, ergo, the lack of leverage.
The reason for the investment is because the platinum/gold spread hit a record low, the platinum/gold ratio hit a thirty-three year low, and the time that platinum has been priced below gold is at a record duration. Our thought is that this is like a stretched rubber band that’s due to snap back violently.
However, rubber bands will sometimes break. That’s another reason we’re doing this experiment without any leverage!
Investment experiment aside, the platinum/gold spread looks like it could be good for a speculative trade.
First of all, the spread recently tested last year’s record low and stated to recover. The bounce faded off at the end of May, but a recovery above the May high could put it on an upward trajectory.
Also, the last two times the spread dropped this low (June 2016 and October 2016) it was soon followed by rallies of $182/oz. and $135/oz.
Now, the spread initially bounced off the early May multi-month low and then fizzled out just a couple of weeks later. Last week it even closed just a mere five dollars away from the May 4th low. That’s not how it played out the last two times, so it’s a little suspect.
But that brings me to my next observation…
Over the last year or so, the 50-day Moving Average has done a good job of defining the trend in the platinum/gold spread. The bounce into mid-May stalled out once the spread encountered the declining 50-day MA and failed to clear it.
A two-day close above the 50-day Moving Average for the first time since February would turn the trend bullish again. Having that happen right after a test of the prior lows that launched the last two sizable rallies could stack the deck even further in the buyer’s favor.
As a trader- not an investor, mind you- it seems that going long in the platinum/gold spread on a close above the 50-day MA and liquidating on a close below it would not be a half-bad strategy.
Place a hypothetical contingency order to buy two 50 oz. October platinum futures contracts and simultaneously sell one 100 oz. October gold futures contracts if the nearest-futures spread makes a two-day close above the 50-day Moving Average. If filled, exit the position on a two-day close below the 50-day Moving Average.