Analysis
- Prices have shifted from consolidating to correcting – this looks less like a bull-flag now.
- Platinum has broken the neckline of an inverse H&S pattern. The target from the pattern is $1,207 – prices are back below the extended neckline but only just.
- The series of higher highs and lows still looks constructive but prices have fallen through the bottom of the up channel, which looks less so.
- The pullback has so far still been relatively limited and on the weekly chart (not shown) the pullback looks quite normal. The underlying upward trend could also have plenty of room on the upside.
- The stochastics are bearish for now, suggesting prices will spend some time falling or consolidating. Prices could fall back towards $971 where the SL is without doing too much damage to the chart. The 38.2% Fibo is at $983.
Macro factors
Having been considerably oversold – its discount to gold reached around $360 at one stage – we are not surprised that prices have rallied. We are also not surprised by the correction given that the run of better economic data out of China has halted, with some disappointing numbers out recently.
Still, Chinese passenger car sales climbed 6.5 percent in April from the same month of last year, according to China Association of Automobile Manufacturers. On top of good US and EU vehicle sales, this bodes well for a recovery in PGM demand.
Recent CFTC data has shown an uptick in the fund long position after an extended period of long liquidation. The net long fund position climbed 1,027 contracts in the week ending May 17 via 1,702 extra longs being taken, offset by 675 contracts of short-selling. The net position at 39,404 contracts is up from a recent low of 28,623 contracts, with the bulk of the running done by fresh buying. This bodes well for the market.
ETF investors seem more nervous – there have been redemptions in platinum holdings recently, suggesting less confidence about holding metal into the price correction.
During the recent Platinum Week in London, the mood was somewhat subdued towards the PGMs – the interest seemed more focused on gold. We wait to see if the funds continue to accumulate; if so, the physical market may be caught off guard.
Conclusion
The main driving force this year seems to have been short-covering but long liquidation had cushioned its impact. More recently, the funds have turned buyers – we wait to see if the funds continue to buy into the price dip. If they do, a rebound in price may prompt even more buying and restocking.
