From Kaplans' site.................
Updated @ 5:40 p.m. EST, Friday, January 23, 1998.
COMMENTS OF THE DAY: Commodities in general ended Friday with modest gains. Silver surged 17.5 cents, platinum edged up ten cents after a sharply lower start, and palladium sank $5.05. The real story of the day was gold, which rallied nine dollars in very heavy trading after initially starting lower and finding stiff resistance at $290 spot. The current spot price is about $299.45, which is technically a very unstable level. Therefore, the yellow metal next week is either likely to retreat to its European close around $296.75, or else the huge number of stop loss orders placed by short sellers will trigger a chain reaction of short covering. There are mild resistance levels on the upside around $325 spot and $350 spot. With COMEX estimated volume at 110,000 lots, it will be important to see how much of the rally could be attributed to short covering, which will be made clearer around noon on Monday when the open interest figures for Friday's trading are released. The less the quantity of short covering, the greater the likelihood of an extended rally. Gold is now about one percent above its fifty-day moving average, which represents an important technical point, and is also just above the critical downward trendline formed by connecting the descending peaks on a weekly chart dating back to the first week of February 1996. Gold mining shares, meanwhile, gained an average of ten percent on Friday.
On Friday, the junior mining companies rallied more than their senior counterparts for the first time since late October. This indicates that gold fund managers must be receiving a sufficient net inflow of funds so that they are not fearful of investing in only the most liquid issues. Over the past two years most fund managers have been burned time and time again as they attempted to dip into mid-cap golds, only for the market to plunge lower again and these shares to have trouble finding a ready buyer. Since this represents an important technical change in direction for the junior issues, which have been especially hard hit over the past two calendar years, a sustained gold rally would probably induce a substantial flow of cash (especially in percentage terms) into gold funds, where junior companies are far underrepresented in terms of their market capitalization. Thus, such shares would significantly outperform their senior counterparts as fund managers gradually shed their current near-absolute insistence on liquidity and restore the junior shares to reflect their actual share of total mining output. |
