PLATINUM TODAY: Looking fragile on subdued safe-haven demand

Short Term:
Medium Term:
Long Term:
Resistances:
R1 1,000 ~50% Fibo, 200 DMA
R2 1,046 2017 peak
R3 1,141 DTL from 2012 high
R4 1,184 2016 high (Jul)
R5 1,290 DTL from 2008 high
Support:
20 959
50 985
100 959
200 1,004
Support:
S1 959 20 DMA
S2 958 61.8% Fibo
S3 893 78.6% Fibo
S4 811 2016 low
S5 745 2008 low
Stochastics:
Legend:

Refer to here

Technical Comment

Momentum is negative while the ADX is below 20, indicative of a weak downtrend.

Analysis

  • Platinum has broken below its 20 DMA again, highlighting the fragility of sentiment at present. As a result, we are inclined to stay neutral over the very short term (around one month).

  • Longer-term view: as our monthly chart shows, platinum is fighting with its 20 MMA at $975 per oz. 

  • On the upside, platinum needs to move back above its 20 DMA to shore up sentiment. If so, we would see the next key resistance at the 200 DMA. On the downside, the break below the 20 DMA may push the precious metal still lower toward the 61.8% Fibo and the UTL.

Macro drivers

Platinum has come under downward pressure this week after giving up all its gains made on Monday morning, in part because the wave of risk aversion proved transient and risk sentiment recovered subsequently, prompting investors to unwind their risk-unfriendly positions built in platinum. Also, we think that the sharp sell-off in palladium, falling more than 2% since the start of the week, is producing negative spillover effects on sister metal platinum.

In the fundamentals, autocatalyst demand for platinum should remain healthy this year, in part owing to the resilience in auto sales in China (up 8.8% in the first two months of 2017 from a year ago) as the Chinese economy has seen its near-term growth momentum strengthening, judging by the latest key macro indicators.

Macro investors will pay close attention to the final GDP report in the USA due today to gain a clearer view about the health of the US economic recovery and the resulting speed of the Fed’s tightening cycle. Any disappointment in the data or a dovish stance from Fed officials may push the dollar and US real rates further down, which should be positive for platinum.

Investment/speculative flows:

  • ETF investors are broadly quiet so far this week (356 oz added according to our estimates) after accumulating about 6,000 oz last week.
  • Net long speculative positioning deteriorated for a third straight week over March 14-21, the latest CFTC statistics show. Looking ahead, we think that spec sentiment may improve because the resurgence of risk aversion may prompt specs to rebuild some safe-haven trades in favour of platinum.

Supply/demand balance:

The WPIC revised its forecasts in March. It expects the global platinum market to be in a deficit of 120,000 oz, upwardly revised from its previously projected deficit of 100,000 oz. So 2017 should be the sixth consecutive year of deficit.

The WPIC estimates that the global platinum market was in deficit of 270,000 oz in 2016, above its earlier expectations of 170,000 oz.

Conclusion

We remain neutral on platinum over the very short term as the metal has failed to break sustainably above its 20 DMA, suggesting that sentiment is still fragile. In this context, we may turn negative on platinum in case of a firm break below the UTL. Conversely, we may turn positive should platinum close above its 20 DMA by the end of the week. Macro forces (i.e. the dollar, US real rates, and the volatility among risk asset classes) are likely to have a meaningful impact on the trend of platinum in the coming days and weeks, in our view.

Over the short term (1-3 months), we are slightly bullish – we think the metal will perform well in absolute terms and ultimately outperform palladium once the risk rally ends.

For more information about our forecasts, please see our January spotlight

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