**Quarterly Overview**

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Precious Metals Weekly Component Report PDF-01.19.2022

Precious Metals Weekly Component Report Spreadsheet-01.19.2022

Gold, silver, platinum, palladium, and rhodium prices moved higher over the past week. Platinum, palladium, and silver prices rose over 4% since the previous report.

February gold settled at $1,843.20 on January 19, up 0.87% since January 12. Gold’s pivot point remains around the $1,800 level, with gold recovering when below and failing when above.  On November 16, February gold rallied to the highest price since June at $1,881.90 per ounce. On December 15, it fell to the lowest price since mid-October at $1,753. Technical resistance for February gold is at the mid-November $1,879.50 high. Support is at $1,781.30, the January 7 low. Gold had made lower highs and lower lows from August 2020 through March 2021, but the lows remain mostly higher over the past eight months. Gold’s rally failed after the November 16 high as the prospects for rising interest rates increased. The Fed’s latest meeting sent gold back to the $1,800 pivot point. The latest CPI report indicating inflation at 7% last year and core inflation at 5.5% was not bearish for the gold market.

Support for March silver remains at $21.945, the January 7 low, with resistance moving higher to $25.49 per ounce, the mid-November high. March silver settled at $24.231 on January 19, 4.41% above the price on January 12. Silver made a new low for 2021 at $21.41 at the end of September on the continuous futures contract and stopped falling at that low on December 15. The price fell with gold after the Fed minutes but rallied since January 7.

Gold and silver mining shares mostly outperformed the metals over the past week. The mining stocks tend to underperform the metals on the downside and outperform during rallies. The GDX was 3.44% higher, and the GDXJ moved 3.03% to the upside, while gold futures were 0.87% higher. The SIL and SILJ silver mining ETF products that hold portfolios of producing companies moved 3.82% and 5.27% to the downside, respectively, since January 12, while silver futures rose 4.41%. The mining shares provide a leveraged exposure to the metals. The price action in the shares was mostly bullish for the metals.

Gold underperformed silver since the previous report, leading to a lower silver-gold ratio over the past week. The ratio reached a new modern-day high as risk-off selling hit the silver market in March 2020, taking the price below the $12 per ounce level. 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.

April platinum was 4.93% higher since January 12 and was at $1,028.40 after again moving above the $1,000 level where it consistently has failed. The Biden administration’s green agenda is supportive of platinum as its high melting point makes it a perfect metal for catalysts, but platinum cannot hold rallies.

Nearby platinum futures rose to a high of $1,348.20 on February 16, 2021. Platinum corrected since the mid-February high. Support on the January platinum futures contract is at $919.50 per ounce, the January 10 low. Short-term resistance is at $1,113.10, the mid-November high on the continuous contract. Platinum has disappointed investors as the multi-year pattern continued over the past weeks.

Rhodium is a byproduct of platinum, and the price of the metal had been in a bull market since early 2016. The highly volatile rhodium price was sitting at a midpoint price of $16,400 per ounce on January 19, up $300 or 1.86% since the previous report. March palladium rallied 4.83% since the previous report after the violent drop in December. Palladium reached a new record high at $3,019 per ounce on May 4. Support is at $1,818.00, the January 3 low, with resistance at $2,216.50, the mid-November high. March palladium settled at the $2,008.40 per ounce level on Wednesday, January 19.

The action in precious metals has been like watching paint dry over the past months.

Open interest in the gold futures market moved 1.34% lower over the past week. The metric moved 2.95% lower in platinum. The total number of open long and short positions was 2.88% higher in the palladium futures market. Silver open interest rose by 2.97% since January 11.

Source: CQG

The daily chart of the price of February gold divided by March silver futures shows that the ratio was at 76.05 on Wednesday, down 2.69 from the 78.74 level on January 5. The ratio fell to a low of 63.57:1 on February 1, 2021 and rose to 80.87 on December 9. It made a lower high at 80.67 on January 6.

The ratio traded to over the 125:1 level on the high in March 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.  

As I wrote in the past reports:

“The ratio moved over the 70:1 level for the first time since late January, which could be another bearish sign for the precious metals. 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. However, selling had pushed the relationship higher and to a new high for 2021 at 80.87. The trend in the ratio had been a bearish factor for the gold and silver futures markets as it has made higher lows and higher highs since February 2021. The ratio began to decline in late September but moved substantially higher and made a new peak in December. Over the past week, the ratio turned lower.

April platinum moved 4.93% higher, while March palladium rose 4.83% over the past week. March Palladium was trading at a premium over April platinum, with the differential at the $980.00 per ounce level on January 19, which widened since the last report. A slowdown in automobile manufacturing and substituting palladium with platinum in automobile catalytic converters likely impacted prices. April platinum was trading at an $814.80 discount to February gold at the settlement prices, which narrowed since the previous report as platinum outperformed gold.

The price of rhodium, which does not trade on the futures market, rose $300 or 1.86% since last week at the $16,400 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 and reached the $30,000 level in 2021. 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 $1,028.40 per ounce, a contract on NYMEX has a value of $51,420.00. Platinum continues to offer the most compelling value in the precious metals sector. Platinum has been underperforming all other precious metals for over half a decade.

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.

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. According to the World Gold Council, Thailand, Hungry, and Brazil, along with other countries, have been buyers over the past months. 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 longer-term trend remains 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.”

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.

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 has weighed on gold.

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 eventually charge higher, 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 are in 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.

Critical support for gold 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 over the coming months.

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. Every significant dip in gold has been a buying opportunity over the past two decades. I remain a committed and cautious precious metals bull. I continue to buy and add to physical long positions on price weakness.

I continue to favor precious metals. The price action over the past months had been more than disappointing. Buying on weakness has been the optimal approach for years, and I expect that to continue. Inflation is ultimately bullish for gold and precious metals, and other commodities continue to signal that the economic condition is rising in early 2022. Interest rates may be rising, but inflation continues to keep real rates in negative territory. The price action over the past week has been constructive as we move towards the end of 2021.

I will trade with the trends and continue to add to long physical positions on periods of price weakness. Buying when the precious metals look the worst has been a winning approach for years, and I expect that to continue. Precious metals had been frustrating for the bulls in 2021. Time will tell if the new year brings a resurgence of gold and silver, inflation barometers, and platinum group metals that clean toxins from the environment.  The price action after the Fed meeting was bearish, but gold remains over the $1,800 level, which is a pivot point and not bearish considering the Fed’s plans to tighten credit. If gold can hold around the current level, the yellow metal can mount a rebound, which would likely take silver along for the ride. Precious metals displayed signs of bullish life over the past week.

A Final Note

The December CPI and PPI data showed that inflationary pressures continue to rise. Meanwhile, the Fed’s forecasts for interest rate hikes in 2022 and 2023 point to a continuation of negative real interest rates, which is fundamentally bullish for commodity prices. WTI and Brent crude oil prices eclipsed the technical breakout level that could lead to a move to higher levels and triple-digit prices over the coming weeks and months. The stock market continues to look shaky during the Q4 earnings season, and bonds are near the recent lows, threatening after breaking below the March 2021 low. Precious metals are threatening to move higher in early 2022. Geopolitical tensions threaten to cause additional volatility in markets across all asset classes.

Approach all markets with caution and a plan for risk and reward. Do not allow short-term trades to become long-term investment positions because of adverse price moves.

Expect lots of volatility in markets across all asset classes over the coming weeks. The economic and political landscapes suggest we could be in for a highly volatile period in markets.

I plan to increase the price of the report in the coming months. However, all of my current loyal subscribers will never experience an increase in their monthly or annual subscription rates. I will grandfather all subscribers at their current rates for as long as they maintain their subscriptions. Thank you for your support.

Until next week,

Andy Hecht

 

 

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.