PLATINUM TODAY: Trying higher, but struggling

Apr 5, 2017 - 4:34 PM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 915 DTL (broken at)
R2 955 20 DMA
R3 1,029 Feb 9 peak
R4 1,045.50 Recent high
R5 1,090 May 2016 peak
R6 1,195 Aug 2016 peak
R7 1,289 Jan 2015 peak
Support:
S1 955 20 DMA
S2 948 61.8% Fibo (Dec-Feb rally)
S3 940 Mar 31 low
S4 932 Mar 15 low
S5 911 Feb low/HSL
S6 889 Dec low
S7 811 Jan low
S8 807 Support 2004
S9 745 2008 low
Stochastics:Turns bullish
Legend:

BB – Bollinger band
DMA – daily moving average
Fibo – Fibonacci retracement level
(H)SL – (horizontal) support line
H&S – head-and-shoulder(s) pattern
U/DTL – up/downtrend line

Analysis

  • Platinum prices rebounded after the significant sell-off that severely dented this year’s rally. The correction took prices below the 61.8% Fibo of this year’s rally and got close to the December base and the long-term UTL.
  • The recent rebound ran out of steam, but support was found and prices are edging higher again.
  • The stochastics have higher again.
  • With gold prices holding just below this year’s highs and palladium prices recently setting fresh highs for the year, platinum prices are looking particularly weak.

Macro factors

The Nymex net length dropped for a fourth straight week, falling 1,326 contracts in the week to March 28 to 27,629 contracts. The decline was driven by short-selling and long liquidation. With the gross long fund position relatively low and the gross short position climbing, it is not surprising that prices are struggling. But the build-up in the short position raises the risk of short-covering at some stage, especially with gold prices still looking strong.

The global platinum market will remain in a structural deficit for a sixth consecutive year in 2017, according to the latest forecast by the World Platinum Investment Council (WPIC). It sees the market in a 120,000-oz deficit this year, slightly deeper than the 100,000-oz deficit forecast previously; the market was in a 270,000-oz deficit in 2016. This reflects revisions to its demand expectations – it now sees global demand contracting by 6% to 7.78 million oz from the 2% contraction forecast previously amid lower demand from the automotive, industrial and investment sectors, alongside weaker jewellery consumption, which is now forecast to contract. The WPIC forecasts total global supply to record a downwardly revised 4% decline, owing to a drop in refined and secondary supply.

Conclusion

After the recent sharp pullback, platinum prices may be able to edge higher. The fundamentals are supportive, prices are relatively low and the overall economic climate is mildly bullish, although we have concerns that the major auto market may struggle for growth as strong growth has been seen over the past 18 months or so. On balance, though, we are bullish for gold prices, which should support platinum prices too, especially because they remain at a significant discount ($290 per oz) to gold prices.

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