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Platinum Pop Perplexing

 February 08, 2013 09:47 AM


(By Mani) Platinum group metals (PGMs) are getting more attention recently amid choppy price action in the precious metals space. Platinum, in particular, claimed center stage as it climbed towards $1740. The initial gap higher was all on the back of buying on the CME - which left many market participants baffled.

Finding a specific reason for the sudden $16 jump proved to be a struggle, as there were no particular headlines or economic data on which to lay blame.

"We think the most plausible explanation is simply that the move was a continuation of the positive momentum in both PGMs of late," UBS strategist Edel Tully wrote in a client note.

Platinum is playing catch-up with palladium as the latter has been on a strong uptrend since printing a low of $666.40 in early January. In percentage terms, palladium has rallied nearly 16 percent while platinum lags slightly at 12.7 percent.

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The $1700 psychological level offered decent resistance over the last three weeks, and it was only yesterday that platinum managed to cross this area convincingly. This likely got people excited and quickly shifted the focus to the next resistance area around $1730.

The platinum:gold ratio touched a high of 1.04 – a level unseen since August 2011 – before settling around 1.03. The platinum:palladium ratio also advanced to a high of 2.28 from a low of 2.22 earlier this week.

"Palladium got a lift from platinum's strength, but overstretched palladium positioning meant that the downside remained vulnerable," Tully noted.

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So, when market commentators' remarks on the potential for higher-than-expected Russian stock sales hit the headlines, palladium was quick to give back about $11 from the highs. Although the consensus is that sales from Russia to be significantly lower this year, this has been the general view for some years now, and yet, another upside surprise in sales volumes cannot be ruled out with certainty.

The latest price movement would suggest that investors have a strong appetite for these white metals at the moment and that they are still quite comfortable to overlook the issue of positioning for now. Instead, their focus seems more on the improving global growth outlook, which is creating a friendlier atmosphere for PGMs.

'The momentum suggests that there is some more upside to be had – but extra vigilance is required. Any risk-off development or negative economic data print would easily trigger an overdue washout, considering the amount of net speculative longs,' Tully added.

Meanwhile, gold remained resilient around the 50-day moving average at $1677.92. Given the gold market this week was mainly characterized by choppy moves within the range, this Friday's CFTC report is likely to reveal limited changes to positioning. CME gold open interest from Jan. 29 to Feb. 5 was down by 0.83 million ounces (moz), which probably reflects a combination of long liquidation and short-covering.

In the week to Feb 6, gold ETF holdings rose by 0.08moz to 88.27moz while silver ETF holdings decreased 0.34moz to 545.96moz. Platinum ETF holdings rose 11.03koz to a hit a new high of 1800.44koz on the back of inflows into the ETFS (NYSE) fund.

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