Commercial trading in platinum is primarily controlled by the producers.
[Editor’s note: Learn more about using the CFTC Commitment of Traders data here.]
This is typically the case in any market where production is confined to very few sources yet is responsible for meeting global demand. This can be seen in the platinum market by viewing the commercial trader position over long periods of time. The point to make note of is that the commercial trader position typically varies from net short to heavily net short. These are the actions of the relatively few large platinum producers hedging their forward production versus the global demand of many smaller end users.
Platinum producers know that it costs roughly a little less than $1,500 per ounce to get it out of the ground. The platinum chart shows the July and December runs down towards $1,300 per ounce simply made it cheaper for platinum producers to buy the futures and cut production rather than continue mining at a loss. We can also see the selling pressure they placed on the short side of the market as they hedged forward production at a profit in February and August.
There are two developments of which we need to be aware. Looking again at the same chart, you’ll see that the momentum indicator in the second pane makes a higher high on the January 13th high than it did on Thursday’s high. This solid technical divergence at the recent high suggests further weakness ahead. Secondly, we now see platinum producers placing selling pressure on the market at $1,450. This lower ceiling could cap prices and leave the market stuck in a trading range. This may be based on their outlook for declining demand over the next quarter or, so.
