PLATINUM TODAY: Prices meeting stiff resistance

Short Term:
Medium Term:
Long Term:
Resistances:
R1 926 Mid-Oct lows
R2 952 Various highs mid-Oct/late-mid Nov
R3 956 40 DMA
R4 1003 50% Fibo (Jan 2016 low>Aug 2016 high)
R5 1006 20 DMA
R6 1006 200 DMA
R7 1021 Nov 9 peak
R8 1038 Aug peak
R9 1090 High (May)
R10 1102 UTL Nov/Jun low
R11 1118 DTL (Feb 2013/Jul 2014 highs)
R12 1176-92 Late 2014 low/Apr-May high
Support:
S1 1102 UTL Nov 2015/Jun lows
S2 1076 50% Fibo Jun>Aug rally
S3 1006 200 DMA
S4 1006 20 DMA
S5 989 40 DMA
S6 959 100 DMA
S7 957 61.8% Fibo Jan>Aug rally
S8 952 Various highs mid-Oct/late-mid Nov
S9 951 50% Fibo Jan-May
S10 945-947 Jul/Aug 2015 lows
S11 929 Support/resistance Jul/Aug 2015 Feb-Apr 2016
S12 910-880 Support/resistance Oct 2015-Feb 2016
S13 811 Low so far
Stochastics:Fastline turning lower
Legend:
DMA - Daily moving average
Fibo - Fibonacci retracement level
BB - Bollinger band
RL - Resistance line
SL - Support line
UTL - Uptrend line
DTL - Downtrend line
H&S - Head-and-shoulder pattern

Technical Comment

Analysis

  • Platinum has edged to a four-month high of $1,031 per oz overnight but further attempts higher have so far struggled, as implied by the longer upper shadow on today’s candlestick formation.
  • We expect prices to continue to find support around $1,000 per oz, with additional support seen around $990 from the 40 DMA and at $970 from the 55 DMA.
  • $1,003 marks the 50% retracement level of the 2016 rally from $811 to $1,195 per oz
  • We expect resistance above around $1,048, which marks the 38.2% Fibo of the 2016 rally.
  • But we note a potential ‘Golden Cross’ – the 20 DMA is poised to cross above the 200 DMA, which will continue to signal bullish price sentiment.

Macro factors

The Nymex net length was virtually unchanged in the week to February 21 when funds/CTAs carried out a near-equal volume of long liquidation and short covering. The net length stands at 39,642 contracts, up  14,228 contracts or 56% in the year to date. But while there has been a modest rise in speculative longs, the recent price strength is still heavily dependent on short covering. But with open shorts at the lowest since August 2014 – during protracted industrial action by South African mine workers – the metal is vulnerable to a sell-off triggered by the return of short selling unless speculative bulls re-engage and enable prices to vault the $1,020-30 per oz resistance band.

ETF holdings are at a 2017 high of 2.37 million oz, following recent demand from US-listed investors.

Vehicle sales globally recorded strong growth last year, supporting rising demand for emission-control devices. Passenger vehicle sales in the three largest markets (the USA, China and the EU) increased 8.5% in 2016 to 56.5 million vehicles. Chinese passenger vehicle sales surged by 13.7% on the previous year, supported by the tax break on small vehicles, according to the China Assn of Automobile Manufacturers. Sales in Europe also enjoyed strong growth last year, rising 6.8% year-on-year. But we believe sales will grow far more modestly in 2017; sales in China are forecast to climb a further 5% in 2017 to 29.4 million vehicles, while sales in Europe are forecast to grow only 1% due to political and economic uncertainties. Sales in the USA contracted by 1.8% year-on-year in January, while passenger vehicle sales in China contracted by 1.1%. By contrast, passenger vehicle sales in Europe increased by a strong 10.2% year-on-year in January.

Platinum continues to grapple with the fallout from the Volkswagen emissions scandal – major cities such as Paris and Madrid have pledged to ban all diesel vehicles by the middle of the next decade. The UK government is also thought to be considering a diesel scrappage scheme after receiving a final warning for failing to comply with EU air pollution limits for nitrogen dioxide.

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 global demand contracting by 2% to 7.84 million oz – lower automotive, industrial and investment demand will outweigh an increase in jewellery consumption. It forecasts total global supply to record a similar 2% decline, mostly owing to a drop in secondary supply, resulting in an overall deficit of 100,000 oz. The WPIC also projects platinum to record a much narrower 170,000-oz deficit this year, down from the 520,000-oz deficit it forecast previously. This reflects an upwards revision in scrap supplies due in part to higher availability from Chinese jewellery fabricators, where a destocking phase is under way, and while higher steel prices boost supply from spent autocatalysts.

Conclusion

Platinum prices moved to tackle overhead resistance with a little more conviction on Friday. But while prices remain supported, resistance is proving stubbornly strong. We maintain our positive outlook for now but the danger is that, unless prices can make a sustained break higher, they will be vulnerable to stale liquidation, particularly if Nymex shorts start to re-engage.

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