Precious Metals Weekly Component Report PDF-06.16.2021

Precious Metals Weekly Component Report Spreadsheet-06.16.2021

Gold, silver, and platinum posted losses since June 9, but prices moved substantially lower in the aftermath of the Fed meeting after settlement prices came out. Palladium and rhodium posted gains. 

August gold settled at $1,861.40 on June 16, down 1.80% over the past week. However, the price traded down to a low of $1,804.40 in the wake of the Fed meeting. Technical resistance for June gold is at the $1,919.20 per ounce level, the high from June 1. Support is now at $1,756.80, the low from April29. Gold has made higher lows and higher highs since March 31, when the price traded to a marginally higher low of $1,677.30 on the June futures contract. Gold ended the streak of quarterly gains in Q1 2021. Over the past week, gold fell. 

Support for July silver is at $25.745, the April 29 low, with resistance at $28.900 per ounce, the May 18 high. Silver put in a bearish reversal on the daily chart on June 3, it took the Fed to help it follow through on the downside. July silver settled at $27.812 on June 16, 0.68% below the price on June 9 but it fell to a low of $26.70 after the June FOMC meeting in the aftermarket. 

If the price action from 2008 through 2011 is a guide, gold will eventually head for much higher prices, and silver should make higher highs. However, the road higher is rarely a straight line. Silver is a very different asset than a stock with a large short interest. However, the many conspiracy theories surrounding the silver market make the metal a logical target for the herd of traders and investors on social media platforms. They took the price to a new high at the start of February, but silver corrected the very next day. I continue to believe that price weakness is a buying opportunity for long-term investors. We could see the Reddit crowd and other speculators have another try at pushing silver higher over the coming weeks and months after wild success with AMC, GME, and other stocks. 

Gold and silver mining shares underperformed the price action in the futures market since the previous report, as they closed after the Fed meeting and futures settlement prices came out. The GDX was 3.24% lower, and the GDXJ moved 2.70% to the downside. The SIL and SILJ silver mining ETF products that hold portfolios of producing companies moved 2.21% and 2.05% lower since June 9. The mining stocks underperformed gold and silver since June 9. 

Gold underperformed silver since the previous report. The silver-gold ratio edged lower since last week. The ratio reached a new modern-day high as risk-off selling hit the silver market last March, taking the price below the $12 per ounce level. The ratio moved steadily lower over the past months. I continued to add to long physical positions in gold, silver, and platinum during periods of price weakness. I will continue to trade leveraged derivatives and mining stocks on a short-term basis with tight stops. While gold mining stocks and derivatives follow the price of gold, they are not the metal and could experience significant periods of price deviation if risk-off conditions return to the stock market. I hold long core positions but will employ tight stops on any new positions that increase exposure to the two leading precious metals. 

July platinum was 0.86% lower since June 9 and was at the $1,141.90 level. Platinum rose to a new multi-year high in February 2021. In Wednesday’s aftermarket July platinum traded to a low of $1,116 per ounce. The green Biden administration’s green agenda is supportive of platinum as its high melting point makes it a perfect metal for catalysts. The critical level on the upside stood at the August 2016 peak at $1,199.50. The move above that level sent July platinum futures to a high of $1,351.20 on February 16. Platinum then fell towards the $1,100 level and bounced.  Support on the volatile July platinum futures contract moved lower to $1,115.20, the March 5 low. Short-term resistance is at $1,281.40, the May 10 high. Platinum has the potential to explode if it follows the patterns in the palladium and rhodium markets over the past years.

Rhodium is a byproduct of platinum, and the price of the metal had been in a bull market since early 2016. The price of rhodium rose to a midpoint price of $22,200 per ounce on June 16, up $1,400 per ounce or 6.73%. Rhodium lost approximately one-third of its value over the past weeks. Profit-taking likely hit the illiquid rhodium market. September palladium moved 2.31% higher since the previous report after hitting a new record high at $3,019 per ounce on May 4. Support is at $2,734.00 on the September contract, with resistance at $3,010, the most recent high. September palladium settled at the $2,836.80 per ounce level on Wednesday, June 16. 

Open interest in the gold futures market moved 2.39% lower over the past week. The metric moved 2.48% lower in platinum. The total number of open long and short positions was 0.09% lower in the palladium futures market. Silver open interest rose 5.10% since June 8. The open interest will likely drop with the price action in the wake of Wednesday’s Fed meeting.

The silver-gold ratio edged lower over the past week as gold underperformed silver. 

Source: CQG

The daily chart of the price of August gold divided by July silver futures shows that the ratio was at 67.01 on Wednesday, down 0.78 from the level on June 9.  The ratio fell to a low of 63.88:1 on February 1, when July silver rose to the $30.015 level. The ratio traded to over the 122:21 level on the high on March 18, 2020. The long-term average for the price relationship is around the 55:1 level. The ratio rose to the highest level since futures began trading in 1974 as the price of silver tanked in mid-March. The move lower since then has been a supportive factor for the two metals. In 2008, the ratio peaked during the risk-off selling and then fell steadily until 2011.  The ratio remains below the 70:1 level. Over the past weeks, the ratio has been consolidating. The ratio tends to move lower during bullish periods in the gold and silver markets. The price action in the ratio since March 2020 is historically a bullish factor for the precious metals. 

Platinum fell 0.86%, while palladium rose 2.31% over the past week. September Palladium was trading at a premium over July platinum, with the differential at the $1,694.90 per ounce level on June 16, which widened since the last report. July platinum was trading at a $719.50 discount to June gold at the settlement prices, which narrowed since the previous report based on settlement prices. 

The price of rhodium, which does not trade on the futures market, was $1,400 higher since last week at the $22,200 per ounce level. Rhodium is a byproduct of platinum production. Rhodium was highly volatile in 2020 and moved at a new record high in early 2021. The price moved higher from a low at $575 per ounce in 2016. The bid-offer spread in Rhodium remained at $2,000 per ounce. The spread is at a level that makes any investment in the metal irrational. Rhodium is an untradeable commodity, but it can provide clues about the price path of the other PGMs. 

I continue to favor buying physical platinum as well as gold and silver during corrective periods. In gold and silver, the GLD, IAU, BAR, and SLV ETF products hold physical bullion and are acceptable proxies for the coins and bars. In platinum, PPLT and PLTM are the proxies. Leave buying scales wide during the current sell off as it is impossible to pick bottoms. Since a NYMEX platinum futures contract contains 50 ounces of metal, purchasing a nearby futures contract on NYMEX and standing for delivery is a way to avoid significant premiums for the metal. At $1,141.90 per ounce, a contract on NYMEX has a value of $57,095. The price was lower in the aftermarket on Wednesday.

Platinum continues to offer the most compelling value in the precious metals sector. Platinum had been underperforming all other precious metals for over half a decade. The recent price action and bullish reversal in November was the start of a reversal of that price action. Platinum had been one of the best-performing exchange traded precious metal in 2021 in a reversal of fortune for the rare metal. The $1,200 level remains a pivotal level for the volatile metal. Palladium’s rise to a new record high could trigger eventual buying in platinum given the similar industrial applications of the two PGMs.

The GLTR ETF product holds a portfolio of physical gold, silver, platinum, and palladium for those looking for diversified precious metals exposure. I continue to believe that gold will head a lot higher, but the route will not be in a straight line. The stimulus in the US and Europe continues to be highly supportive of gold and silver prices. Platinum is inexpensive from a historical perspective compared to gold and palladium. Palladium and rhodium continue to trade in bullish patterns, but both are sensitive to global economic conditions. We should continue to see volatility in all of the precious metals with a bias to the upside.

I continue to favor investing in physical gold, silver, and platinum on price weakness. I hold long core positions. When it comes to trading, I am going with the flow with very tight stops.  As I have written in the past, the long-term ascent of gold marks the descent of fiat currencies that rely on the full faith and credit of the governments that print legal tender. Central banks and governments worldwide continue to hold and be net buyers of gold, which is the ultimate currency. The conditions creating a risk-off period are only likely to increase liquidity and stimulus levels in what could eventually be a vicious bullish cycle for gold and silver prices. The most bullish factor for precious metals is the loss of purchasing power for fiat currencies. 

While countries can print legal tender to their heart’s content, the gold stock can only increase by extracting more from the crust of the earth. If 2020 turns out to be anything like 2008, even higher highs in gold are on the horizon, and the precious metal has the potential to surprise and even shock market participants on the upside in the coming months and years. Gold moved to a record high in dollar terms, and it reached new highs in virtually all other currencies over the past two years. Silver broke a four-year resistance level over the past months. The price action in silver had been explosive after the metal created a blow-off low below $12 per ounce in March 2020. The trend is always your best friend in markets, and it is higher in the precious metals.

I have been writing:

“The odds of significant corrections rise with the prices, so be careful and remember to take some profits on the way up.  I am a buyer on dips but would leave plenty of room as price swings could be wide.” 

I believe that prices will eventually shock analysts on the upside given the flood of liquidity from central banks, which is bearish for fiat currencies. Taking some profits in late July and early August left room to add to physical positions during the recent price weakness. Gold suffered a setback on June 16.

The Fed and other central banks’ approach to monetary policy continue to weigh on currency values. As the value of the dollar, euro, and other currencies decline, it creates an almost perfect bullish storm for the world’s oldest means of exchange, gold, and silver. I would only buy or add to long positions during significant corrections. We could be in for a bumpy ride in precious metals, but the price action remains bullish, and higher highs are likely on the horizon. 

The economic impact of the coronavirus is prompting the Fed to add even more liquidity to the financial system and will encourage the US government is putting new stimulus programs in place. The increasing money supply is bullish for precious metals prices. The falling bond market had weighed on gold. 

Platinum corrected after its surge earlier this year. Production from South Africa declined because of platinum’s poor price performance over the past years.

As I have written over the past months:

“I continue to believe platinum is the metal that has the highest odds of a shocking price move to the upside.”

I expect the precious metals bull to charge higher later this year, but it is likely to be a bumpy road, as we witnessed over the past weeks. The bull market in gold began at the start of this century and continues as we head into its twenty-first year. However, there have been long periods of price consolidations and occasional downdrafts. Bull markets often suffer severe selloffs on the route to higher prices. Silver is the barometer for investment demand as it attracts the most speculators, as we witnessed recently. Meanwhile, demand from electronics and solar panels for silver and green technologies for PGMs continues to provide industrial support for the prices. 

We have seen significant price appreciation in the digital currency asset class. Many “experts” believe that Bitcoin and other digital currencies are attracting investors that would typically purchase gold and silver. I continue to think that this is a short-term phenomenon. The sudden sentiment shift could produce rallies in the leading precious metals. Gold and silver have been a means of exchange for thousands of years, while cryptocurrencies have only been around for the past decade.

Moreover, since the digital currency asset class threatens the central bank and governmental control of the money supply, the risk of investing in many of these products is elevated given the recent parabolic gains. While I believe in the future of digital currencies, they are likely to experience lots of volatility as central bankers like Christine Lagarde’s call for regulation to stop the “speculative” price action. US Treasury Secretary Janet Yellen’s comments are also cautionary for the asset class.

In an environment where the faith in governments is declining along with creditworthiness, gold and silver are likely to continue to attract investment demand. PGMs clean toxins from the air. A greener policy path in the US and worldwide to address climate change increases the demand for platinum and palladium. I continue to hold precious metals and add to physical positions on price weakness. Look to buy on weakness and avoid paying up for the metals during rallies. Sudden price spikes tend to be selling opportunities. 

Meanwhile, I will retain a core long position for the long term. I believe gold will find a bottom sooner rather than later. Gold was in the buy-zone at the lowest price of 2021, below $1,700 per ounce. It failed at the $1,900 level. Critical support is all the way down at the $1,450.90 level, the 2020 low. I believe the long-term bull market trend will reawaken the gold and silver markets in 2021.

Over the past weeks, I wrote:

“I have begun buying more gold mining stocks via GDX and GDXJ as I believe they will eventually outperform gold when the price of the metal begins to climb. I am using wide scales but believe we will see gold and silver at higher prices over the coming weeks and months.”

I remain bullish on precious metals, given the inflationary environment in markets across all asset classes. However, I will be using wide scales over the coming sessions. Every significant dip in gold has been a buying opportunity over the past two decades.