Platinum rally shows signs of running out of steam

Platinum spiked to a record high of about $2,900 an ounce this week as precious metals surged in a risk-off rush. But momentum has started to cool. As the candlestick chart below shows, a drop below $2,614 would make a pullback more likely; a push above $2,919 would strengthen the case that the rally can continue. Platinum was last at about $2,690 on Tuesday, down about 7% on the day.

Platinum sits in a group with five other rare, precious and chemically similar elements – palladium, rhodium, ruthenium, iridium and osmium. South Africa is the world’s largest producer of platinum group metals. 

What it means:

• A gauge of whether buyers are losing steam, known as the stochastic indicator (the bottom chart), shows a negative divergence that might trigger selling. 
• The possible rising wedge formation acts as a warning that a reversal is possible, because while prices are rising, each push higher is weaker.
• The spinning candle (which has a smaller range between its highest and lowest levels during a day) confirms that some uncertainty is on the rise. Below line A ($2,614), the wedge can come into play, and we may see prices fall to as low as $2,100. 
• Above $2,919, the price may go even higher, wiping the warning signal off the table. Possible targets are: $2,945; $2,967; $2,989; $3,000; $3,043; $3,089; $3,106; $3,145 and $3,200.
• For traders, consider selling below line A if you believe the rising wedge formation may play out to the downside. Think of using $2,732 as a stop loss to protect capital. The possible targets to the bottom are: $2,578; $2,532; $2,500; $2,443; $2,430; $2,393; $2,356; $2,318; $2,289; $2,256; $2,230; $2,187; $2,134 and $2,100.
• For medium- to long-term investors, consider reducing exposure below line A. It may be time to get worried when $2,318 becomes the resistance level. The 40-week moving average (red line at $1,563) is a good sentiment barometer for investors. Below the average, signals are wary; above it, they are positive.

This is the personal opinion of the writer and must not be taken as financial advice. Frans de Klerk is an independent technical analyst.