FxWirePro: A glimpse through precious metals and trade perspectives

The PGMs seem slightly edgy today across the board this morning with prices off an average of 0.6%, led by a 0.9% slump in platinum to $990.50 per oz, while gold prices are off by 0.4% at $1,334.33 per oz. This follows a day of weakness on Monday that saw prices close down by an average of 0.7%. Platinum bouncing off $880/oz in mid-December and outpacing gold’s well-publicized 9% rise by climbing more than 15% over the last six weeks, spot platinum prices are now around $1,016/oz today, approaching the upper bound of its year-long range.

Looking ahead, while we think the dislocation between movements in US real yields and the US dollar will likely continue in the short term, we believe that the recent break in the correlation between precious metals and US real yields is more of a temporary dislocation rather than a regime change.

We continue to hold a short recommendation in gold and expect both gold and platinum to give back some gains in the short term as the premium they accrued in recent weeks above a fair-value implied by US real yields deflates.

Meanwhile, palladium continued its steady march higher until meeting resistance and failing to break above $1,140/oz on January 15th.  Since then it’s off only around 3% but has largely traded sideways for the last two weeks.

While the broader move higher in palladium has not moved against our view directionally, it has outpaced our expectations with spot prices currently about 9% above our 1Q’18 average of $1,010/oz. 

Given the recent failure to break above $1,140/oz, our short-term bearish technical outlook, and the potential for some profit taking given very long investor positioning, and the upcoming Chinese New Year, we hold a near-term short bias on the metal and think it could retrace some of its recent gains.

That being said, we would like to see some stabilization in the dollar before fully committing to a bearish trade recommendation in either metal. Courtesy: JPM