This is not your typical trade that I am advising to buy or sell a commodity instead I am examining a spread where one would buy gold futures and simultaneously sell Platinum futures. The idea is platinum has moved up way too much way too fast. As a mean reversion we should see prices back off in the near future?that is at least the plan. YTD platinum futures are higher by 10% making it one of the best performing commodities. Platinum also has advanced to over bought status and though supply disruptions could keep this metal in the spotlight I do think we back off in the short run. Platinum is an untamed beast and not for the faint of heart as daily ranges can be $50 plus dollars or $2,500 per contract. Worse case a trader could be wrong and lose on platinum and gold if both metals move in the wrong direction so understand this spread is not for everyone.
It is not that I am extremely bullish gold though I do think its relative value can hold up better than platinum in the next few weeks. Regardless of how we arrive if gold advances or platinum declines if the spread narrows enough to make $2000 on the spread I would be gone. The tricky part here is depending on your risk tolerance you may want to do 1:1 as I?m advising clients to be short April platinum and long February gold. However the contract sizes are different so some traders will chose to buy (1) gold and sell (2) platinum so they are spreading 100 ounces against one another. This to me is far riskier.