Autochartist - Weekly Commodities Update: Platinum

It could be "crunch time" for the precious metals complex, as the technical outlook begins showing signs of weakness against a backdrop of economic weakness and a US Dollar finding a foothold in the foreign exchange market. Support levels across the sector are being tested, with several consecutive pushes towards the previous highs falling back amidst stiff selling pressure.

The US Dollar is a major factor in the perceived potential for the precious metals to sustain their rally towards higher highs, and two major shifts currently underway may serve to prop the value of the currency in the near term.

The Federal Reserve's end of Quantitative Easing as of June is creating a bearish environment for global equities as the anticipation of reduced access to liquidity and fresh money supply sends investors into a defensive posture. Major world stock indices have erased most or all of the gains of 2011 over the last two months. Additionally the lack of Fed purchases of US treasuries after QE2 raises the very likely prospect of higher US Treasury interest rates in the very near future, which is viewed as supportive of the USD.

Further strength is coming from a reduced expectation of growth in the Euro-zone, with accompanying pessimism over debt loads and long terms stability in the Euro. As the Euro is the major counterpart for the Dollar, a flight from the Euro creates upward pressure for the Dollar even if no other particularly bullish developments arise.

As that pressure builds, precious metals will need to weather continued volatility and eventually stand on their own merits as a "third alternative" currency play for investors avoiding both currencies. This remains highly probable in the long run, but major support levels will likely be tested in the short term.

Platinum is currently displaying the narrowing range which often precipitates a pattern breakout, and is perhaps the clearest chart in the sector for signaling a direction shift. Platinum has been in a very long Rising Wedge chart pattern, shown here on the 240-minute time interval. Last week's relatively quiet trade carried the market into the apex of the Rising Wedge, settling at major support near $1,830 per ounce. This level will need to hold for the pattern to maintain the rising trend, and a breach on market weakness would trigger a downside breakout with an accompanying forecast for a fairly large drop in platinum's price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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