Precious Metals and Cryptocurrencies – Q2 Overview – Q3 Outlook 2021

Precious Metals Weekly Component Report PDF-09.15.2021

Precious Metals Weekly Component Report Spreadsheet-09.15.2021

Rhodium and palladium fell sharply over the past week, while platinum dropped. All three PGMs moved to new lows for 2021. Silver slipped slightly lower, and gold posted a marginal gain. 

December gold settled at $1,794.80 on September 15, up 0.07% since September 8. December futures traded down to a low of $1,677.90 on August 9, which had some hallmarks of a blow-off low. A flash crash caused by liquidation and sell stops was likely responsible for the Sunday night, August 8, fast and furious decline in the two leading precious metals. Technical resistance for December gold is at the $1,839.00 per ounce level, the July 15 high. Support is at $1,774.60, the August 19 low. The levels did not change since last week.

Support for December silver is sitting at $23.335, the August 27 low, with resistance at $24.945 per ounce, the September 3 high. December silver settled at $23.801 on September 15, 1.06% below the price on September 8.

Gold and silver mining shares marginally outperformed the metals since the previous report. The mining stocks tend to underperform the metals on the downside and outperform during rallies. The moves over the past week were marginal. The GDX was 0.22% higher, and the GDXJ moved 1.00% to the upside. The SIL and SILJ silver mining ETF products that hold portfolios of producing companies moved 0.60% lower and 0.76% to the upside respectively since September 8. The mining stocks were have not moved all that much.

Gold outperformed silver since the previous report, pushing the silver-gold ratio a bit higher. 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.

October platinum was 4.67% lower since September 8 and was at the $930.50 level. Platinum rose to a new multi-year high in February 2021. It fell to the lowest price since November 2020 over the past week. The green Biden administration’s green agenda is supportive of platinum as its high melting point makes it a perfect metal for catalysts, but platinum fell in sympathy with the PGMs over the past week. The critical level on the upside stood at the August 2016 peak at $1,199.50. The move above that level sent continuous platinum futures to a high of $1,348.20 on February 16. Platinum corrected since the mid-February high. Support on the October platinum futures contract moved lower to $815.20 per ounce, the July 2020 low.

Short-term resistance is at $1,029.20, the August 13 high. Platinum has the potential to explode if it follows the patterns in the palladium and rhodium markets over the past years. Waiting for a bullish recovery remains painful as the price continues to make lower lows. Over the past week, platinum was ugly compared to gold and silver but was the star of the PGMs as rhodium and palladium prices tanked.

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 $10,800 per ounce on September 15, down $5,400 or 33.33% since the previous report. Rhodium lost one-third of its value over the past week. Profit-taking and liquidation panic likely hit the illiquid rhodium market. December palladium dropped 10.98% since the previous report. Palladium reached a new record high at $3,019 per ounce on May 4. Support is at $1,732 on the continuous contract, the May 2020 low, with resistance at $2,500, the August 30 high. December palladium settled at the $1,991.60 per ounce level on Wednesday, September 15, as it has declined over the past five consecutive months.

Open interest in the gold futures market moved 0.08% lower over the past week. The metric moved 9.92% higher in platinum. The total number of open long and short positions was 1.00% higher in the palladium futures market. Silver open interest rose 0.97% since September 7. The precious metals futures markets moved mostly lower over the past week. PGMs have been falling knives.

The silver-gold ratio edged higher over the past week as gold outperformed silver.  

Source: CQG

The daily chart of the price of December gold divided by December silver futures shows that the ratio was at 75.22 on Wednesday, up 0.55 from the 74.67 level on September 8.  The ratio fell to a low of 64.03:1 on February 22. 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, the recent selling had pushed the relationship higher and to a new high for 2021 at 77.37. 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.

Platinum fell 4.67%, while palladium plunged 10.98% lower over the past week. December Palladium was trading at a premium over October platinum, with the differential at the $1,061.10 per ounce level on September 16, which narrowed since the last report. A slowdown in automobile manufacturing and substituting palladium with platinum in automobile catalytic converters could be weighing on palladium. October platinum was trading at an $864.30 discount to December gold at the settlement prices, which widened since the previous report based on settlement prices.

The price of rhodium, which does not trade on the futures market, was down an incredible $5,400 or 33.33% since last week at the $10,800 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 $930.50 per ounce, a contract on NYMEX has a value of $46,855.

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. Platinum remains a compelling value below the $1,000 level for physical purchases. The value proposition does not mean the price cannot fall further. The trend is lower, and it is always our best friend in all markets. 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.”

We are currently in the midst of a corrective period. I continue to purchase physical metals but remain short in trend following portfolios.

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.

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, dropping below the $1,000 level, making a lower low over the past week. 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 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. The markets ignored that over the past week.

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.

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. However, I will continue to use very wide scales over the coming sessions. 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 recent price action has been disappointing. Buying on weakness has been the optimal approach, 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 September 2021. However, the short-term trends were mostly bearish as of the end of last week. I believe the relay race in commodities to higher highs will eventually pass the bullish baton back to gold and silver and that platinum will move higher. It is impossible to pick bottoms in markets. Palladium and rhodium are correcting from lofty levels. 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.