Tuesday, April 04, 2006


Metals Dip On Profit Taking, ETF Worries

CNN Money has some trading numbers. "U.S. gold futures gave back some recent gains by the close and held at lower levels throughout the session on Tuesday, as some large players decided to take profits, traders said. 'It was just a little bit of profit taking. Guys who have sizable positions are just taking some money off the table. That's it,' said one New York gold dealer."

"June gold on the New York Mercantile Exchange's COMEX division fell $3.70 to $590.60 an ounce by the close and set a session range between $589.50 to $595.30. Spot silver slipped to $11.66/11.69 an once, from $11.75/78 previously. It was fixed at $11.7450 on Tuesday. NYMEX July platinum firmed $2.50 to finish at $1,091.60 an ounce. It hit a 26-year high above $1,105 last week."

"Spot platinum fetched $1,078/1,082 an ounce, $5 more than Monday's late quotes. June palladium lost $4.05 to end at $342.35 an ounce. Last Thursday, it climbed to a near four-year high at $355.80. Spot palladium was indicated at $339/343 an ounce, slightly more than Monday's close."

"After striking a 25-year peak on Monday, some traders said they thought a target of $600 an ounce was still in view for both COMEX and spot gold. 'At this point in the game, it's all technical. We're still working toward our objective in gold, the initial objective which is $600,' a trader said."

"Deutsche Bank's global head of commodities research said on Tuesday gold may head beyond $600 and toward $700, boosted by upbeat fundamental factors and by fund buying."

"The dollar fell to a two-month low against the euro on Tuesday, as investors expectations for a European interest rate increase were heightened after a news report said the European Central Bank may raise rates at its May meeting. While the dollar's weakness may have underpinned gold's losses, traders said they thought its influence these days was secondary to technical factors."

"'We've somewhat separated from our relationship with the euro. It's one of the things we factor in, but it's not the driving force that it used to be,' said one trader."

And Market Watch has this on the silver ETF. "A highly anticipated exchange-traded fund tracking silver prices may usher in a correction from multidecade commodity highs if it follows the pattern of gold ETFs, analysts say. Analysts, though, say the introduction of the silver ETF could actually set up a price pullback in the days and weeks following the start of trading."

"The most successful gold ETF launches were Gold Bullion Securities on the London Stock Exchange in December 2003, and StreetTracks Gold Trust in November 2004 on the New York Stock Exchange. Mohinta found gold prices rose by up to 12% in the 90-day periods leading up to the ETF launch dates, only to fall between 7% and 10% in the corresponding period after the listing date. So far in 2006, through Monday's close, silver futures are up more than 32%, fueled in part by the ETF talk."

"Mohinta said he doubts that the entire 13 million-share allocation will immediately sell out, pointing to the common practice of using mining stocks such as Pan American Silver Corp. to get exposure to silver without holding the physical metal. Stocks have the added benefit of dividends, he added."

"'While silver can get to $15 or $20 before it's all said and done, the actual launching of the silver ETF could mark a short-term top for silver,' added Peter Grandich, noting that the silver ETF could represent a 'buy the rumor, sell the news' trade."

"Analysts are also warning about potential confusion over the tax structure of precious-metals ETFs. Under current tax law, long-term gains from the sale of silver are taxed as 'collectibles' like artwork. Therefore, if held for more than a year, gains on the silver ETF would be taxed at a maximum rate of 28%, compared with 15% for so-called long-term gains on stocks. If sold in less than a year, gains are taxed as ordinary income.'

If traders believe this sell off will happen to silver, then it will probably be a self fulfilling prophecy.
On the other hand:

Bank sees Resistance to SLV ETF Profit-taking

SILVER MARKET FUNDAMENTALS: Apparently a well known Swiss Bank has suggested that the silver market will see favorable supply and demand conditions for the next two years and that has provided the market with some resistance against the recent profit taking tilt. Furthermore, with both copper and zinc markets remaining at or into new high ground, the investment theme for silver is expected to remain in the headlines. In fact, with the Press still carrying fresh stories overnight on the expanding number of investment vehicles in silver, it would seem like the "ETF" issue will continue to pull players toward the silver market. While May silver has made a new low for the move overnight, the market doesn't appear to have an aggressive liquidative tilt in place. We suspect that the Credit Suisse prediction, of a multi-year bull market in silver, will serve to embolden would-be buyers and in the process discourage some sellers. However, the outside influence from the gold market remains a little negative and the impact from the currency market is unclear. While we suspect that May silver could fall back down to the even number $11.50 support level, we do not think that the market is overly vulnerable to sustained declines. In fact, given all the favorable long term headlines, we have to think that price declines will steadily increase speculative buying interest and in effect result in a quick reversal at some point in the coming two sessions. In order to throw off the slightly negative early tilt today, the May silver only has to regain $11.73. Traders should continue to hold longer term call positions in silver.

what do you guys think of the tankers? most of them have taken a big hit the last year or so.

NAT has a 26% dividend and VLCCF has a 12% one.
VLCCF has a P/E of 9 and NAT has one of 9 also.
NAT/VLCCF look scary with the one year downward trend. To capitalize on the dividend, you may want a special strategy such as holding + buy puts + sell covered calls. Draw out scenarios to make sure your risk is minimal.
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