PLATINUM TODAY – Prices start the year with a rally

Jan 3, 2017 - 1:14 PM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 915 20 DMA
R2 915 DTL
R3 926 Oct’16 lows
R4 1021 Nov 9 peak
R5 1090 May peak
R6 1195 High so far
R7 1289 Jan ’15 peak
Support:
S1 957 61.8% Fibo (2016 rally)
S2 954 June low
S3 9157 20 DMA
S4 911 Feb low/HSL
S5 889 Low so far
S6 811 Jan low
S7 807 Support 2004
S8 745 2008 low
Stochastics:Bullish
Legend:

Fibo = Fibonacci retracement level
DMA = Daily moving average
BB = Bollinger band
(H)SL = (Horizontal) support line
UTL = Up trend line
H&S = Head-and-shoulder pattern

Analysis

  • The pullback in platinum has been relentless, with prices falling back to levels last seen in February. On December 15, prices moved below recent support, setting a low at $889 per oz. The metal has since traded sideways at a slightly higher level.
  • With platinum rallying today, support may have been found. Today’s rally has got back above the DTL and the 20 DMA – but it would take a move back above $952 per oz to suggest prices are trending higher again.
  • The stochastics have turned bullish too.

Macro factors

Given stronger industrial metals prices, it is surprising that platinum prices weakened as much as they did in the second half of 2016.

November EU passenger vehicle registrations rebounded, rising 5.8%, having been flat in October. This has removed one concern – following October’s data, it did look as though the EU auto market may be slowing down. Growth, however, was seen in all major EU markets in November. In the first eleven months of the year, registrations were up 7.1%. 

Generally strong auto data seems to have been ignored in the second half of the year, with poor jewellery uptake and the gold price weighing on sentiment. 

Another bullish feature is that South Africa’s PGM output fell 12% in the year ending October 2016, according to Statistics South Africa.

We still see platinum as underpriced at these levels. Given a depressed jewellery market, it may take a recovery here before sentiment turns brighter. A pick-up in economic activity may bode well for jewellery demand down the road. China is the biggest consumer of platinum jewellery – a turnaround in China’s economic outlook may feed through to more spending on luxury items (in time).

The funds’ net long position had become very extended, peaking at 55,949 contracts on August 9. It has dropped to a low of 20,098 contracts by October 25 but rebounded to 26,268 contracts as of December 20 -it has since eased to 25,414 contracts. Long liquidation has been the main depressing factor. See CFTC data and chart.

Conclusion

We felt platinum prices had become oversold – they remain so. Prices appeared to have formed a base and there is some buying evident today; we wait to see if there is follow-through buying in the day’s ahead.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.