Friday, February 03, 2006

 

US Dollar Strength Clips Gold; Up On The Week

Market Watch reports on the day and week for precious metals. "Gold futures fell over $5 an ounce Friday after reaching a fresh quarter-century high a day earlier, but prices still finished over 1% above the week-ago close. 'Recent strength in the dollar is making some would-be buyers a little nervous,' Nell Sloane, analyst at NSFutures.com, said."

"'Gold's downside as we start the next trading week off is likely to be quite limited with strong fund activity continuing as continuing inflows into the ETF's [exchanged-traded funds] continue,' said Peter Spina, an analyst at online resource GoldSeek.com. 'Gold is still favoring a run higher here to and possibly beyond $600,' he said, adding: 'silver remains set to re-test $10 and into the low teens still.'"

"Gold for April delivery closed at $571.60 an ounce on the New York Mercantile Exchange, down $5.20 for the session, but up 1.4%, or $7.90 from the contract's close last Friday. A week ago, the March contract ended at $563.70 and the February contract, which was the lead month, closed at $558.80."

"April platinum closed down $6.60 at $1,082.70 an ounce after touching a record $1,091 on Thursday. Prices ended the week with a $10 gain. Its sister metal, palladium, saw its March contract climb $9.35 to close at $318.20 an ounce after a $322.50 high, levels not seen since April 2004. For the week, the contract's up 14.5%."

"Economists at Action Economics said gold had consolidated around $572 overnight but found support from a wave of buying by investment funds in Tokyo. 'The [precious-metals] complex remains generally very well bid, with [the Tokyo Commodities Exchange] platinum futures contract, for instance, logging a fresh record high today,' said the research firm."

"In recent sessions, gold has found support from political developments worldwide, notably the tensions building between western governments and Iran over its recently resumed nuclear-research program. On Friday, Iran warned that it wouldn't consider moving its uranium enrichment program to Russia if it was referred to the U.N. Security Council, according to the AP."

"'Gold proved to be the perfect insurance in a portfolio over the last few years and most portfolio managers believe that gold is an asset which should not be missed in their portfolios,' said Frederick Panizzutti, an analyst at MKS Finance in Geneva. The real risk of a renewed oil shock, the Iranian nuclear talks, the risk of a 'timely economic destabilization triggered by renewed terrorist actions' are more than sufficient reasons to 'keep part of one's assets in a safe and very concrete investment, immune from all possible disruptions,' he said."

"Over in the equity market, shares of metals-mining companies lost ground, pulling the benchmarks that track the sector lower. All of the indexes was set to end the week higher. 'The metal equities are taking a much welcome breather and correcting from very strong gains recently,' said GoldSeek.com's Spina. 'Pullbacks have been short-lived though, and any indication of an additional leg higher in the metal prices brings back buyers,' he said."

Comments:
If you have any ideas for a weekend topic, please post it here. I have a couple:

The historic ratio of gold and silver prices.

The decoupling effect, as one reader pointed out this week with GLD and the spot price, and what does it mean.
 
I'll toss in a vote for the silver vs. gold topic. Silver is IMHO going to be the story of the year with the ETF launch.
 
Maybe it could be a showdown between all top four metals: gold, silver, platinum, and palladium.

Palladium has had a bigger run up than silver over the last few months. But it doesn't get much press.
 
Yeah, a good discussion of the platinum/palladium dynamic would be interesting.

Another topic would be on William Clark's "Petrodollar Warfare" stuff covered in last week's FSO interview. Specifically the idea that the USD has been propped up solely by being the only currency for purchasing oil.
 
Ben:

How about the relationship with rising interest rates to the strength of the USD.

I posted a comment on your housing bubble blog a few days ago that stated the USD was generaly strong when the Fed raised interest rates. Historically this has ALWAYS been the case. One only has to go as far back as 2005 to see the affect, yet I was BLASTED on the board as a COMPLETE idiot by the Mad Maxers.
 
TJ & the Bear:
You should have your own blog. Not necessarily posting updates, but to list all your good resources. If you do have your own blog, I can't see it since your profile is private.
 
I like to see what positions any of you are taking.I have some physical
,and just bought some silver stocks..
I read the Yahoo! metals boards ,and there are some good pointers among the crap the idiots post. My gut says I don't neary enough in as I do think it is realy going to run this year..Still I remain cautious.

Then I read this ,and the greed makes your hair stand up on your neck....What if?

Bull run
 
here is the platinum/palladium ratio.

palladium is up some 50% lately.

platinum/palladium ratio.
 
I'd like some guestimates of where silver will go this year.

As someone new to it, and not having held it below $9.. $25 doesn't sound expensive, whereas $1000 for gold sounds really steep. I'm hoping alot of people will have the same impression come ETF time.
 
out at the peak,

Thanks, but no thanks. Too busy working and reading... glad to share, though!

thejdog,

Yes, some posters at HB2 have been getting a little overly sensitive lately, although I can't help but always tempted to blast newbies spouting naive mediaspeak. There are so many newbies over there these days! Although HB2 is still addictive as all heck, this is now Ben's bleeding edge blog.

Interest rates are definitely a strong contributing factor, but not the only one of course. USD strength was essentially my topic suggestion, too.

john_law_the_ii,

Platinum & palladium rise because of general commodity/PM strength, but then palladium rises again due to it's value as a cheap substitute for platinum. Killer, eh?

austinyankee,

The historical ratio between gold and silver is usually 15-to-1, not today's 58-to-1. If this ETF breaks the silver market's blatant price management, that alone would put silver at $40/oz.

Another interesting thought... you know those public car auctions? It's not the expensive cars that garner the attention, it's the cheap ones. A whole bunch of bottomfeeders come in and bid themselves silly. Same thing could happen to silver, given it's so inexpensive compared to gold. Think about it -- GLD is over $56 for 1/10oz, whereas a full oz of silver is under $10.
 
The historical ratio between gold and silver is usually 15-to-1, not today's 58-to-1. If this ETF breaks the silver market's blatant price management, that alone would put silver at $40/oz.
# posted by TJ & The Bear : 12:00 AM

TJ,is correct in reference to the historical ratio.I am of the opinion that we will see Silver trading in the 10 to 15 dollar range by years end. Longer term, 40 to 50 and perhaps higher(time will tell). Of course if the Silver ETF becomes a reality the upward trend will move along at a faster clip. A couple of years from now we'll look back and say,I remember when Silver was just $9.Just like we do now, looking back and saying, I remember when Silver was in the $4's. Don't try and time it, enter now and buy more on the pull backs.
 
Gold, next stop $875.00??

http://www.321gold.com/editorials/appel/appel020406.html
 
Thanks for the information. Lastly, would you continue to accumulate silver in advance of the ETF or wait and jump on that band wagon?`
 
EastofWest:

Terrific article you posted in your link. One of the best IMHO regarding gold, and I've read hundreds this past year. Srta makes me sorry that I liquidated 50% of my GLD ETF yesterday. Normaly I wouldn't do that, as timing markets are risky and very difficult, but most succesful traders employ that tactic. Sell on strenght buy on weakness.

For example, I had a huge run up in both my oil co. stocks since Jan 1st. (26% in one 18% in the other)
I had a STRONG feeling oil was over-reacting to Iran and ignoring the strong stockpiles in the US due to OPEC pumping overtime and the mild winter on the east coast. I should hacve sold some last week and I didn't, as a result both of those stocks lost 10% this week. I think part of the reason gold is still and has not corrected is inflation fears stoked by high oil prices. I think gold comes down some along with oil and I thinmk we're already seeing that.

PS - Now is the time to load up on oil co. stocks if you're interested. Always good to have a little bit of energy in the portfolio, and these companies stock prices fluctuate daily depending on what oil does. The companies have all just reported earnings, so these stocks are basically a play on the price of a barrel of oil. If you want to stay away from US companies BP and TLM are good choices.

TJ & the bear:

Well said. HB2 is very addictive, there are some strong conributers over there, it just seems like there are also quite a few people who are bitter from not profiting off the RE boom.
 
thejdog,

Heck, I missed it entirely myself. Everything happens for a reason, though. I credit the bubble to opening my eyes to what's really going on in the world, though.

Some of those on HB2 and most of those here are privileged to now have insight as to what's coming. Not only will we be better prepared, the right moves now should set us up for life.
 
TJ & The Bear:

I agree about now having the insight. Here we are talking about post-bubble plays, while many at HB still have not wrapped their minds around that bubble.

I hope that being perceptive (and finding blogs like this) will allow us to continue staying ahead of the curve after it's time to move from gold to the next thing...whateverr that may be.
 
austinyankee,

Do both (physical and the ETF)! I still consider physical long-term, whereas the ETF can be a great shorter term play (given insignificant buy-sell margin).

Getting in when the ETF starts may just be like an IPO. OTOH, if it does push up prices quickly, stocks like SLW may be the better play. Still wondering about that, but if we watch closely enough we can switch horses mid-race if necessary.
 
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