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March
07
2019
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Gold And Silver Take The Stairs Higher And Elevator Lower- PGM’s Shine
Gold and silver had been taking the stairs higher The price of gold had been moving to the upside since mid-August when the yellow metal traded to a low at $116140. The most recent peak came on February 20, when gold reached $1344 per ounce on the continuous futures contract. The rally over six months took the price 15.7% higher, an impressive gain considering the decline last summer. Silver waited to reach its low for 2018 as it fell to a bottom at $13.86 in mid-November. The more volatile precious metal then turned around and embarked on a move to the upside that took the price to $16.20 on February 20, which was 16.9% higher on the continuous contract. While silver outperformed gold on a percentage basis from their lows to their highs, historically, silver’s performance tends to be even more dramatic given the speculative nature of the silver market. Silver’s rally took four months, half the time it took gold to reach its high. Gold and silver took the stairs to the upside as their ascent was slow and steady without any price spikes on the upside. An ugly day for gold and silver on the first day of March On Friday, March 1, the prices of both metals plummeted. Only seven sessions after reaching their respective highs accelerated selling caused the most significant selloff in the gold and silver markets in 2019.
Source: CQG The daily chart shows that the price of gold dropped to a low at $1291.30 on March 1, $58.50 or 4.3% below the February 20 peak on the April futures contract. Almost half of the move to the downside came during the March 1 trading session as the price dropped from over $1315 per ounce Gold fell on slightly higher volume than on February 19 when the price was on its way to the recent high. While gold took an elevator lower, silver took the elevator shaft.
Source: CQG As the chart illustrates, the price of silver fell to a low of $15.165 on the active month May futures contract which was 6.9 percent below the February 20 high. Silver fell from over $15.65 per ounce last Friday on significantly lower volume than when it was on its way to the recent high. Friday’s can be crazy and volatile days in the world of precious metals. Dominant market players often push the markets to levels that trigger stops. March 1 was a day where gold and silver left many of those holding long positions scrambling for an exit. Platinum fell, but it remained strong Platinum has lagged all of the precious metals as the price of the metal fell to its lowest price since 2003 last August. Gold has not traded below $1000 per ounce since 2009, and the price of silver has not ventured under $10 per ounce since 2008. However, platinum has been a dog in the precious metals sector. While gold fell to its lowest price since early 2017 last summer and silver dropped to its low since early 2016, platinum reached a decade and one-half bottom at $755.70 per ounce on the nearby NYMEX futures contract.
Source: CQG As the weekly chart shows, since last summer the price of platinum has ventured below $800 more than a few times. The most recent move to $780.90 during the week of February 11 gave way to a rebound in the price of platinum which traded ton a high at $879.90 during the final week of February. Platinum has recovered by 16.4% from its mid-August 2018 bottom at its most recent high. On March 1, nearby platinum futures traded to a low at $859.40 on the April futures contract, only 2.3% below the recent peak as it has been playing catchup and outperformed both gold and silver on the first day of March. In the world of platinum group metals, while platinum has been a laggard, palladium and rhodium prices have been on fire on the upside. Palladium and rhodium continue to be bullish beasts In late 2015 and early 2016, many of the precious metals hit bottom. Gold fell to a low at $1046.20 per ounce, silver to a bottom at $13.635, and platinum to $812.20 per ounce. While gold and silver have not returned to those lows, platinum violated its low from that period by $56.50 or 7% Meanwhile, in early 2016 palladium fell to a bottom at $451.50 and rhodium was at around the $600 per ounce level. All of the platinum group metals have a myriad of industrial applications because of their density and high resistance to heat. Primary platinum and palladium production comes from South Africa, while in Russia the two metals are a byproduct of nickel output. Rhodium is a byproduct of platinum production. The three metals are similar, so they can serve as substitutes for each other. Meanwhile, the decline in the price of platinum caused it to drop below production cost at some South African mines. Less output of platinum created a shortage of rhodium which has sent the price significantly higher. At the same time, the price of palladium has been moving steadily higher reaching its most recent peak last week as gold and silver prices were correcting.
Source: CQG As the weekly chart shows, palladium reached a high at $1553 per ounce on March 1, and the nearby NYMEX futures contract closed only $3 below the peak. Palladium is now over 3.4 times higher than where it traded in 2016.
Source: Kitco Meanwhile, at a midpoint price of $2695 on March 1, the price of rhodium is almost 4.5 times the price in 2016. Palladium and rhodium could be telling us that platinum has a lot more upside over the coming days, weeks, and months. Gold and silver prices corrected while the platinum group metals continued to shine at the end of last week. Corrections are painful but can be very healthy for markets I am bullish for the prospects of gold and silver prices. Therefore, Friday, March 1 was an ugly day. However, I have been trading precious metals since the early 1980s and ran one of the leading bullion-dealing business in the world in the 1990s. An elevator ride to the downside in the gold and silver futures market is nothing new; it has been standard fare for as long as I have been trading these markets. Corrections are painful for those holding long positions, but they can be healthy as they often cleanse the market of weaker market participants. It is likely that as gold and silver declined, more than a few disgruntled longs threw in the towel and sold their positions. The coming days will be critical for the gold and silver markets. I believe they will find bottoms at higher lows and will get back on that staircase and climb to higher heights in 2019. The precious plunge on March 1 could have created another golden buying opportunity in the gold and silver markets. At the same time, platinum is a metal on a mission, and if it continues to display strength, the rare precious metal has a chance to turn the implosion of 2018 into the explosion to the upside in 2019. As an aside, I want to let you know that I one of the founding analysts of a new site – FATrader.com -- dedicated to fundamental analysis. The site has brought together some of the best minds in their areas of expertise in economics, commodities, biotech, and energy/sustainable investing, and will be soon bringing on analysts for gold mining stocks, real estate, technology, shipping, and dividend/high yield to provide analysis for our members. Since opening last Tuesday, we have sold out almost all of our 750 discounted charter memberships. Feel free to come join us for a free trial so you can lock in a charter rate as well. But, they are going fast. As one of our members just commented: “I found enormous value in the high quality posts thus far!” - Chris Walker
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