First, let’s take a look at the Platinum group metals. The recent resurgence in the price of Platinum is attributed to aggressive buying by car manufacturers trying to stay ahead of the curve. Meaning they anticipate higher commodity prices this year.
If you remember just a few months ago, we were talking about some of the Wall Street traders playing the Platinum / Palladium arb (Buying Palladium and selling Platinum). That’s when the price of Palladium was setting an all-time high and the Platinum market was struggling to stay afloat. That strategy was abandoned as soon as the hedge funds started to head for the exits when the Palladium sell off occurred. One can imagine once the word on the street got out that car companies were back in the PGM market, speculators would join in “fueling” the rally in this market.
Well things have changed and the price of both metals have been in rally mode. Now the price of Platinum is in hot pursuit of reaching the level of Palladium and possibly overtaking it at some point in the near future.
The Gold Market
The price of Gold continues its march higher as strong spec buying is reported out of the Far East overnight. Softer U.S. Ten-Year Treasury yields helping to keep the buyers interested.
If this rally in the Gold market continues, the levels of resistance the Wall Street traders are focusing are $1,366 and $1,375. According to my technical program, a trader breakout above the $1,375 level and strong spec buying could emerge bringing the price of Gold ever closer to the $1,400 dollar level, but a stronger dollar and higher treasury yields will derail any chance
of reaching that goal.
Crystal Ball Gazing
Precious metals prices rebounded Wednesday after the CPI number was released. What was so interesting, was the initial reaction right after the number when the equity markets had a three hundred point drop and the price of gold dropped over ten dollars. Rising yields, especially on the U.S. Ten-Year treasury, should take away an appetite for Gold because precious metal investments do not bear a yield. Within a short period of time after the number the value of the U.S. Dollar started to decline and a total reversal became evident as program trading took over in the Gold market sending the price of Gold up to a three week high.
Global equity markets seem to have found some solid ground (if there is such a thing anymore) as the excitement over the unusual trading activity in the VIX index has subsided. Keeping the equity market from another strong rally was the disappointing retail sales data with January down 0.3 percent. The higher than expected CPI number released Wednesday will give the hawks on the Federal Reserve board a stronger position to be more aggressive in raising rates this year.
In the coming days and weeks, all eyes will be on the U.S. Ten-Year Treasury yield to see if new highs are in the cards. Some economists predict a sociological number of three percent will give the Feds all they need to raise rates four times this year.
All Gold investors are hoping for a weaker dollar to offset the higher treasury yields, but I’m not sure that will be enough to stop the expected increase in rates. As always, the Fed will need the data to back up their moves. I think the next CPI figure in February will tell us more, as that release will come before the next Fed meeting. At that point, we (and the Feds) will have a clearer picture of inflation and whether it is on the move or if the higher January CPI number was just an one off.
Many Gold traders will be watching the activity in the U.S. Dollar closely, as many traders believe there isn’t too much more room to the downside. And if the Ten-Year Treasury yields make another four year high, one can expect Gold to head in a southern direction. And I wanted to share with you one Gold program trader’s outlook, he says this is exactly where he’s positioning his program; to short the Gold market. So in other words, this program trader will set up his short position book when the U.S. Dollar reverses its lower trend and the Ten-Year yields make a new four-year high.
At that point look out below.
It will be interesting to see which powers prevail.
Have a wonderful Friday.
Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.