Platinum futures dropped more than 5 percent on Wednesday, capping a volatile short trading week, as investors opted to liquidate ahead of a US holiday in absence of any confirmation of a launch of an exchange-traded fund.
Sharply lower lease rates, active over-the-counter options trading and profit taking also pushed platinum lower, traders said. January platinum finished down $65.10, or 5.3 percent, at $1,154 an ounce on the New York Mercantile Exchange's Comex division.
It had plunged as much as 6 percent to a low of $1,140 an ounce in trading. Spot platinum fetched $1,145/1,165, down from New York's last quote of $1,230/1,235 on Tuesday. "There was tremendous profit taking going on in platinum," said George Gero, senior vice president at RBC Capital Markets.
Gero said platinum's fundamentals were a lot better than its market performance as the metal was in demand. But "large institutional trading will influence the market unduly over the short term," he added. "Unless there is an ETF in the foreseeable horizon, it was overdone in price," Gero said.
ETFs, which are often backed by a physical commodity, enable investors to trade securities on an exchange and get returns based on commodities prices, without trading futures or taking physical delivery. Platinum futures hit an intra-day high of $1,289 on Monday but have retreated since due to heavy speculative trading and profit taking.
During the past month, platinum had gained more than 21 percent on speculation of an ETF launch. "Yesterday the market reversed technically and we hit almost a vacuum of buying.
We are starting to see a little bit of buying coming to the market now for January futures around the $1,156, $1,157 level," said AG Edwards commodities commentator Jimmy Quinn. Quinn said that one-month platinum lease rates at which someone borrows a metal fell aggressively, and that contributed to Wednesday's fall.
The percentage of lease rate tends to rise with a shortage in physical supply. "The platinum market is a very thin market to begin with. I think there is some scepticism whether or not they will actually see an ETF launch," Quinn said. Edward Daly, a floor trader of York Commodities Inc, said it would be difficult for platinum to sustain a rally without any confirmation of an ETF.
With the markets closed on Thursday and Friday for the US Thanksgiving Day holiday, other precious metals were mixed on Wednesday. December gold at the Comex edged up 30 cents to end at $629 an ounce. It traded in a relatively tight range of $627 to $635.
Estimated Comex volume was 65,000 contracts, including 12,955 switches. Options turnover was 15,000. Turnover in the CBOT electronically traded 100-oz gold contract was 56,997 contracts as of 3:11 pm EST (2011 GMT) (http://www.cbot.com/cbot/pub/page/0,3181,297,00.html). Andy Montano, a director at bullion dealer ScotiaMocatta, said a weakened dollar had given gold support until crude prices turned around. "Currencies and oil remain the driving factors in bullion," said Montano. Montano said investment buying remained active. "Fund money continues to seek some protection from a safe haven in gold," he added. "Gold had very good physical support, where both investment and jewellery demand overtook producer selling.
But, between $640 to $650, it's very tempting for higher-expense producers to take profit," RBC's Gero said. Spot gold bullion was quoted at $629.90/630.90, up from $627.90/628.90 at Tuesday's close. Bullion dealers fixed London's afternoon spot reference price at $631.80. Comex December silver slipped 4.5 cents to $13.04 an ounce.
It traded between $13.00 and $13.25. Spot silver was unchanged at $13.04/13.11 from Tuesday's last quote. On Tuesday's fix was at $13.07. December palladium fell $2.35 to end at $326 an ounce. Spot palladium traded at $322/327 an ounce.