Short term
Trade view / 27 January 2016 at 14:12 GMT

Platinum underperforms gold on weakened demand

Managing Partner / Spotlight Group
United Kingdom
Instrument: PLJ6
Price target:
Market price:
Background

I have observed the prices for each trading day so far in January 2016 for the three major precious metals: gold, silver and platinum.

The average percentage change for each is as follows:

Gold up 0.263%, Silver up 0.209% and Platinum down 0.085%

On Monday this week, a poll of 31 precious metals traders forecast that platinum prices for 2016 would copy the trend seen so far in January by declining to levels not seen in a decade as concern over a slowing global economy and the lingering impact of the Volkswagen emissions scandal hit demand for the metal.
Platiunum

Source: CPM Platinum Group Metals Yearbook 2015

The chart above shows that since 2009 there has been no growth in demand for platinum in the automotive industry, which uses the metal in in catalytic converters. Following the Volkswagen scandal of rigged emissions data, the entire car industry is undergoing a review as to how it can improve emissions levels in the future and, as a result, is content to run down platinum inventories instead of acquiring new stocks.

One may wonder how a slowdown in the wider economy is affecting demand. One clear way is that as emerging economies slow, so demand for new trucks to transport goods has fallen. The impact is felt all along the value chain as reduced demand for trucks also limits the need for new catalytic converters.

For 2015 the median forecast for the price of platinum was booked at $904/troy oz, the lowest figure since 2005. It also represents a 20% decline from the median figure in a similar poll of traders conducted in October.

Looking further ahead one can see a more optimistic expectation for the metal price into 2017, with expectations of a rebound to $1,040/oz. However, for now the trend is far from positive.

I do not want at this time to take a naked short position in platinum. Instead I am more interested in the path of the platinum/gold ratio. I am a seller because even with a degree of rotation in the ratio, I expect the main trend of the corrective channel to dominate.

Platinum/Gold Ratio 5 Year Chart:
Platinum Gold ratio

Source: www.investing.com, Spotlight Ideas

Management and risk:

Parameters: Platinum/gold ratio

Entry: Sell 0.78 13:22 GMT

Targets: 0.76 … 0.75 … 0.73

Stop: 0.83

Time horizon: Short-Term


— Edited by John Acher

Non-independent investment research disclaimer applies. Read more
3y
SierraPt. SierraPt.
Steve, how you suggest to put a stop for such a case when this is not a single instrument, but a combination of 2? thanks!
3y
Stephen Pope Stephen Pope
To create the short in the PGR I sell platinum and buy gold.

I then create a spreadsheet with the live price of Platinum divided by Gold to give the ratio.

I do not know what platform you are using but one can create an alert if the targets or the stop loss levels are reached. Or perhaps leave the instruction with the brokers you trade through...they may set such an alert on say Bloomberg. Now at 0.785 (15:15 GMT)

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