From the Desk of Ian Culley @IanCulley
Our precious metals index is hitting fresh 52-week highs despite the waning strength in gold and silver.
Only three markets comprise the index. That leaves only one possible culprit – platinum!
First palladium, now platinum?
It doesn’t matter whether you consider platinum or palladium true precious metals. The industrious side of the family is chipping in, supporting a new structural uptrend for the entire space.
Let’s check it out!
Before we dive into the levels…
Commercial hedgers are unwinding their net-long position after reaching extremes last year. Similar positioning in 2018 marked a key inflection point, resulting in a multi-year rally.
The bullish sentiment of commercial hedgers supports a sustained rally (much like the positioning in palladium).
Whether platinum catches higher in the coming weeks and months partially depends on a further unwind in commercial positioning.
Remember, commitments of traders positioning reflects sentiment. It’s not a trade signal. But it does reveal critical aspects of the market environment. In this case, it’s smart money’s bullish outlook for platinum.
Now let’s look at some charts that can help us define our risk…
First, a weekly chart of platinum futures:
It’s not the cleanest chart.
Regardless, platinum is carving out a multi-year base below a key retracement at approximately 1,225. The bulls attempted to reclaim that level a couple years ago and failed.
Fast-forward to today, platinum is violating a decade-long downtrend line as it breaks to fresh 52-week highs.
There’s an overwhelming amount of supply in the 1,200-to-1,225 zone. I’m not crazy about buying strength on a break above that level, as it likely gets messy.
Luckily, a far better level presents itself on the daily chart:
Platinum completed an inverted head-and-shoulders pattern last week while posting an overbought reading above 70 on the 14-day RSI.
The neckline of the year-long reversal pattern marks my line in the sand. As long as it holds above 1,100, I like it long toward 1,226 with a secondary target of 1,650. I also like that momentum is confirming the breakout.
No one likes whipsaws, including me. But if and when demand absorbs overhead supply at 1,225, I still like adding a small layer to an existing position.
When it comes to the Platinum ETF $PPLT, our risk is well-defined at a retracement level of approximately 105:
As long as platinum futures trade above 1,100, I want to buy PPLT on strength above 105, with an initial target of 122.50.
The uptrends for gold and silver have cooled, but neither metal is under increased selling pressure. Instead, they’re digesting recent gains as the market awaits the May 3 Fed meeting.
It seems reasonable, as I expect more indecisive action from markets in general until the next rate hike decision.
Considering the backdrop now isn’t the best time to enter new positions in gold, silver, or their associated mining stocks. Instead, I prefer to lighten long positions – or feed the ducks – in preparation for the next turn.
While the near-term environment calls for patience, it’s bullish to witness platinum break to fresh highs – palladium too – as I expect the industrial side of the precious metal family to participate throughout a structural uptrend.
I’ve mentioned it many times before, we can talk about 5K gold and eight-dollar copper in the same breath. They are not mutually exclusive. I highly doubt we witness one without the other.
Yes, both markets trade far below those levels today.
But strong hands are showing interest, and fresh highs are becoming commonplace.
Stay tuned!
Thanks for reading! As always, please let us know what you think.
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Allstarcharts Team
