METALS REVIEW of 6/30/1999
Yes, they did it…the fed raised the Fed Funds rate 25 basis points and stocks and bonds went straight up. What about the metals you ask? The metals also took kindly to the news, although there was only few minutes of trading remaining in the metals when the rate announcement hit. Silver gapped higher on follow through strength from yesterday, and eventually closed over 8-cents higher. This market has trampled resistance and is technically looking quite solid. The gold market actually traded with more volatility than usual, with over a $2 trading range. After the fed announcement, gold rallied from near session lows, and was over $2 off lows within just a few minutes. Why would higher rates favor stocks, bonds, and metals? Regarding stocks, I think it was more a relief rally…rates weren't raised more than they were, and the same goes for bonds, as bonds had already dropped to discount a potential rate hike. The metals are probably higher based mostly on sentiment rather than the idea that a 25 point hike is tangibly favorable to gold prices, at least that is my view. Copper screamed to new recent highs on news that Phelps-Dodge is cutting back on production from its higher-cost operations. The copper market was up over 500 points, one of the biggest moves I have seen in awhile…looks like my guess about copper being overdone on the long side was wrong. Platinum also moved higher in sympathy with silver, gaining over $3 on the day. Palladium slid an additional $3. Ask me about a free subscription to our TradeScope newsletter. Need a broker? Contact me at erik@altavest.com, and visit us at www.altavest.com to request our free Real-Time charting software trial.
August Gold – O 262.3 H 263.8 L 261.6 C 263.6 Chg. +1.6
The end of the day brought excitement into the gold pits. Gold traders took the announcement of a rate hike as somehow favorable and gold was able to settle near session highs. Outgoing Treasury Secretary Rubin says that the US has no interest in selling gold reserves, and that IMF sales would not depress prices. To me, this means that officials are afraid that sales will actually further depress prices and/or that they are nervous about the idea not passing through congress. Dick Armey and other congressional are now vocalizing their opposition to the IMF sales, making the potential IMF sales questionable. It is also interesting to note that the majority of third world countries targeted for debt relief are also gold producers. This looming sale has depressed prices to the extent that those countries have lost as much from price depreciation as they may gain in any debt relief. Ghana recently announced that it is not in favor of the sales…it's not hard to imagine why. Once the U.K. auction next Tuesday is complete, the gold market may breathe a sigh of relief. Also take note that the recent Bullish Consensus shows bullish sentiment at 13, the lowest figure since 1981. If everyone is bearish, who is left to sell? Remain vigilant for a dramatic short covering rally, use limited risk option strategies, as buying futures, in my judgement, is too risky. Technical indicators, an inverted head and shoulders, and the bullish divergence are still in play. Seasonally, October gold tends to rally 90% of the time from now until mid August an average of about $30.
September Silver – O 525.5 H 530.5 L 524.5 C 528.7 Chg. +8.0
After challenging overhead resistance at 519 over a few sessions, silver closed well above that previous nemesis area. Not only did it rally, but it closed near session highs. I have felt that silver looked ready to break and run higher based on the technical ascending triangle formation, and yesterday and today other traders confirmed my thoughts. If gold continues to hang on or rally, then silver will most likely attract fresh longs and continue to rally. In spite of the fact that Comex silver stocks are still only about 2.5 million ounces from all time lows, not everyone feels that above-ground supplies are short. Walter Frankland of the Silver Users Association said “the supply picture by those promoting silver as an investment is one of impending shortages, while the facts are different…. there remains large quantities of silver above ground.” Regardless of the above ground stocks on hand, prices have been moving higher for the entire month of June, rallying about 40-cents. The 531 area is a Fibonacci resistance area based on the prior move lower, and we saw that resistance come into play today…notice today's high? Regardless, the bulls are now excited and I would look for a pullback to the 520 area as a good buying opportunity. We are well above moving averages, tech indicators are headed higher, and the market closed near highs…looks bullish to me.
September Copper – O 7140 H 7690 L 7125 C 7665 Chg. +505
Yes, you read that correctly, the market was up over 500 points! Copper screamed to new recent highs on news that Phelps-Dodge is cutting back on production from its higher-cost operations. The Hidalgo smelter in New Mexico is temporarily closing, they are restructuring assets, suspending operations at facilities in the Philippines, and selling a South African unit. Along with the BHP shut down, the bulls have had so much to feed on that nothing has stood in their way. I couldn't have been more wrong about my assessment the other day that the market looked overbought…that was over 600 points ago! With these shutdowns, the expected surplus that was foreseen earlier in the year may not be as large now, but oversupply continues to exist. The shutdowns are a law of supply and demand, when something gets so cheap, people quite producing it, which eventually lowers supply, and subsequently raises prices. The fed did raise rates 25 basis points but copper bulls don't seem to care about the potential effects this may have on the dollar/yen, housing starts, etc. Japan announced last week that production of rolled copper and alloy products was up 4% from the prior year. Chinese refined copper cathode imports increased by over 250% through May, in relation to the same period last year. Looking at the big picture, this rally over the last few days does not negate the 2-year downtrend, but it is large enough so that if you are a bear you better not hang on. The weekly charts show resistance near 7600. The market is trading well above moving averages and there is a bullish seasonal in effect. Prices don't lie and the market is in a bull move….don't stand in the way.
September Palladium – O 321 H 324 L 320 C 320.3 Chg. –2.95 October Platinum – O 348.7 H 352.5 L 348 C 352 Chg. +3.4
Platinum moved higher today, as the silver rally seems to be having a positive effect on the white
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