Special Gold and Precious Metals Report
Monday, April 30, 2007
by Pete Thomas of RJO Futures
After thirty-five years of trading metals I never cease to wonder about the press when I see headlines like I read today, “Lower dollar makes for less possibilities of gold going higher”.
It is odd after all these years that people “in the know” just don’t understand the market. The intrinsic underpinning of this truly global market of the entire metals market has change in many ways just over the last two years.
The way the market feels as you trade it is complete different. Now I know that having been on the trading and holding a silver deck has allowed me many insights as to flow but now that I’m off the floor I can still feel the shifts as the ebbs and flows over the day change and flux.
I will share with you the dynamics that have truly changed this market and why I feel that these markets should get bought on big breaks.
A weak dollar allows overseas investors to hold gold at a much cheaper price not the opposite as stated above.
The diversification away from dollars has brought some new and rather large players into the gold market (including China).
Additionally, the new found wealth in Russia has seeped into the gold market in an odd way. The Siberian Platinum and gold traders have more money so they are not selling hand to mouth but rather selling rallies like traders.
This impacts the market much less by selling into strength and not pressing weakness. The continued weakness in the dollar will allow large participation in the metals.
The Exchange Traded Funds (ETF’s) have really changed the whole face of the physical market in that they buy and hold.
They don’t roll or swap. They take the gold off the market and that is the end of it, a private Fort Knox. Think about this concept for a moment. The ETF’s enter the market by buying the gold, silver and platinum futures and take delivery. This does two things right off. It truly adds stability and secondly it adds liquidity which is always positive.
The new electronic platforms that are now available to the public are just so fast it is hard to believe. Our system is getting fills back to us in 3/10’s of a second. Look at it this way, at RJO just in the past few weeks we have had new accounts open in China, India, Australia and many parts of Europe and South America.
All of these accounts have one thing in common. They are just touching the screen and trading metals 24 hours a day. The amount of equity flowing into the metals has never happened before in the history of the markets. People that have never traded are very active and it seems to me that they are more prone to the buy side.
Finally the buy only commodities funds are really picking up speed and they are driving head long into precious metals and natural resources. Many of the pension mangers believe that natural resources are getting scarce and as such are cheap at these levels. I see the volume that we have had in the metals continue, we truly have a new market. But long only funds are not bad things they are just a new exponent to the tapestry that is this market.
I would like you all to pause and think about how the market dynamics have changed. The weak dollar, the ETF’s, the electronic platforms and their speed plus the new buy only funds. All of these combined along with a global population expansion will continue to drive the price of metals higher. As always it is where you get in and even as this bull moves higher those setbacks can still rattle the old and new trader alike.
I’m still looking for a pullback over the next few weeks that could give us a chance to enter this market lower.
insidefutures.com
About the author
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Pete Thomas has been quoted in Barron's, the business Section of the Chicago Tribune, and Bloomberg. He is a regular contributor to Futures Magazine and has been featured in FutureSource FastBreak "Ask an Expert" this year. His weekly contribution to the RJOFutures weekly newsletter, "Pete's Corner," covers the New York Softs Markets in depth, complete with trade recommendations. Mr. Thomas also handles managed accounts as a Senior Broker at RJOFutures. With his industry background of thirty five years, both on and off the trading floor, Mr. Thomas is a natural choice for both the new and veteran trader seeking a broker assisted account.
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