Platinum-Gold Ratio Spread

Chart Source: The Bullion Desk Past performance is not necessarily indicative of future results. There is risk of loss in trading futures and options.

Commodities and most assets have unique price relationships that when out of balance represent potential opportunities for some spreading or arbitrage. In the metals complex you often hear about the gold/silver ratio, in energies they talk about the crack spread, in bonds it’s called trading the yield curve. Indeed, stocks are compared to bonds to see if they are over or undervalued according to a formula known as the Fed Model.

Recently, I have been watching another spread; the price relationship of platinum to gold. Both are considered precious metals, with gold having a more “financial” feel to it as it is used to hedge other assets like stocks or bonds. But on a relative basis, platinum is a rarer commodity produced in quantity in only a few countries. With its unique properties it is typically the same price as gold or higher. Currently, the spread is about $300 in favor of gold. I believe this represents a potential opportunity to buy the platinum vs gold spread due to historical valuations and any mining production cuts impacting the supply of platinum more than gold. The trade I am recommending is buying two 50 ounce April platinum contracts and selling one 100 ounce April gold contact. The margin for this trade is $2,200. The value of each dollar move in this trade is $100.00…so for each $1 the spread narrows or widens creates a $100 profit or loss. I see a potential over time for the spread to narrow to $180-200. Of course the spread could also widen causing losses. Some analysts are looking for higher metal prices going forward. This perhaps might be a way to take advantage of an uptrend in metals.

Trade Idea:

• Buy April Platinum /Sell April Gold. $300 premium Gold.
• First Notice Exit Day: March 31, 2017
• Margin $2,200
• Commissions and fees $150.00 per spread.

Regards,
John Turner

Contact the author John Turner at jturner@hwfi.com 

Be advised that trading futures and options involve substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. This matter is intended as a solicitation.

This material has been prepared by a Heritage West Financial broker who provides research market commentary and trade recommendations as part of his solicitation for accounts and solicitation for derivatives trades. The opinions expressed in this article are the author’s own and do not necessarily reflect the view of Heritage West Financial and its staff.

Heritage West Financial, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors, such trading and opinions may be contrary to the opinions and recommendations contained therein.