Morning Futures Roundup

---

Is Platinum Undervalued vs. Gold?


  Fundamentals


Is it a precious or industrial metal? That is the question many metals traders are trying to answer regarding Platinum. While Gold it trading near record highs vs. the US Dollar and at a record high vs. the Euro, Platinum is still trading nearly $600 off its all-time high, despite supplies being rather tight. In addition, it appears that auto production in Japan is resuming much quicker than had been anticipated, which should boost the demand for both Platinum and Palladium, which are used in catalytic convertors.

It appears traders are more focused on the sluggish jobs picture here in the US, however, with the June Non-farm Payrolls report showing only 18,000 new jobs were created last month, which portends to a sluggish recovery. This view has kept Platinum prices in check, as slowing economic growth could hurt industrial demand.

Longer-term, there are some concerns about Platinum output out of South Africa, which is the world's largest Platinum mining country. Though production rose to 4.6 million ounces in 2010, the country has faced labor disputes that have the potential to halt production. Unreliable supplies of electricity have also played havoc with miners in the past, as the country's electrical infrastructure has failed to keep up with the growing demand for power.

It appears that Gold's role of a "safe haven" or even an alternative "currency" has kept a bid under the yellow metal, whereas Platinum has suffered from its more industrial rather than precious metal role. This has kept the spread differential near the $200 Platinum premium level for most of 2011. There have been times when Gold prices have traded at a premium to Platinum in the past few decades, but that has been a short-term event. Should this spread continue to tighten in Gold's favor, longer-term traders may find an opportunity to buy Platinum vs. Gold in the anticipation that the spread will widen to match its true supply/demand fundamentals.



  Technical Notes

Looking at the daily chart for October Platinum, we notice prices breaking out to the upside and out of the nearly 2-week-long consolidation phase that followed a nearly $160 price decline throughout the second half of June. The 14-day RSI has turned higher, with a current reading of 53.10. Near-term support for October Platinum is seen at the recent low of 1710.50, with resistance not found until the June 10th high of 1851.60.



CLICK HERE FOR THE FULL-SIZED CHART


-----------------------------------------------------------------------------------------


Disclaimers
This article is provided for informational purposes only. No statementin this article should be construed as a recommendation to buy or sella security or to provide investment advice. The content provided hasbeen obtained from sources deemed reliable but is not guaranteed as toaccuracy and completeness. optionsXpress makes every effort to providetimely information to its recipients but cannot guarantee specificdelivery times due to factors beyond our control.

Derivatives involve substantial risk and are not appropriate for allinvestors. Please read the "DisclosureStatementforFuturesandOptions" prior to investing in futures oroptions.

For investments using a straddle or strangle options strategy thepotential loss is unlimited. Multi-leg option strategies are subject tomultiple commissions. Profits may be eroded by the commission expendedto open and close the positions and otherrisks apply.



"

---

View Mike Zarembski's post archive >