All in all, the precious metals had a mixed greeting from the markets on the first week of the New Year,
with gold and silver nicely higher, while platinum and palladium suffered. Gold was up about $2.50 for
the week, but is still mired in its well-traveled and well-traded current price range. Professionals buy the
lows of the range and sell the highs, creating such a self-fulfilling prophecy. We did attempt, on several
occasions, an incursion to test resistance at $280.00 basis the spot market, but was repelled in every
case.
Silver was up about 14 cents on the week as lease rates continue at very high levels. Late on Friday
afternoon, such rates traded at 22.5% offered for a 30-day maturity. This continues to give enormous
support to the bullish camp but the mysteries of this market continue to befuddle some analysts who are
encouraging caution at these prices. All of the technical considerations that I follow, in silver, are simply
screaming a sell but significant short positions, or those taken for the longer term appear foolhardy,
while market conditions remain so mysterious. If you are going to short this metal, do it very lightly and
with a short term timing approach. Volatility is increasing, which technically, is usually a good sign of
either a top or a bottom. Clients of the firm are generally flat this market at present as price movements
from current levels could go either way, and quickly. Speculation is one thing, gambling is another.
It appears clear to me that the "squeeze" in silver, which has created a sharp backwardation (where cash
prices are higher than the price quoted for future delivery), is either technically or speculatively
grounded. Which is not to say that it isn't real. But what it does say is that it could end rather quickly, in
one direction or the other. What bothers me is that we should be seeing silver leave New York
warehouses for London, where prices are much higher, and, yet, that isn't happening at all. And why
have short-term lease rates risen so sharply with nary an influence on the longer-term tenors? And yet,
no one that I speak with in the cash market in silver tells of any shortages or difficulties finding
inventory. Please understand that my view is not bearish, I am just cautious at these levels and would be
a good buyer on significant dips in price.
Even though the Russians have now formally stated that they will not be delivering platinum and
palladium to the markets, as has been their game for the last 5 years in order to "bull" price levels, prices
declined. Platinum was down about $6.50 on the week while palladium lost about $25 in value. It is
clear that the Russian circus antics are becoming less and less effective as industrial and commercial
demand for these metals withers. Platinum did manage to break one major technical support level and
looks ready to break more shortly.
I must admit that I was more than a little surprised that the default of Argentina on their sovereign debt,
barely caused a ripple in the financial markets and none in the gold markets. The largest default in
history did not encourage investors to lay aside some of their investment capital to buy gold as
insurance against the destruction of a currency. Being an old-timer in the trade, let me assure you that
had this occurred 15-20 years ago, it would have been worth a rally of at least $50 to $100 in the gold
price. I have always stated that markets have more to do with public perception rather than the realities
or fact, and this bears this point out admirably.
As we approach the end of gold auctions by the Bank of England, I was amused by an article from a
British newspaper that calculated that the BOE had lost 52 Million Pounds by selling a portion of their
national reserves and putting the proceeds into a basket of currencies including the Euro and the Yen.
Once the auctions have been completed, Britain's gold holding will be among the smallest of any major
country, and all for no gain.
And Canada announced that they had sold 55,000 ounces of gold from their national reserves in
December, bringing the total to only 1.1 million ounces. At this rate, they can only do this for 20 more
months and then the cupboards will be bare. I would believe that it is certain that the government of
England and Canada will be most unhappy with their actions in years to come.
On to the Commitment of Traders reports as of 12/28/2001:
GOLD
Long
Speculative
Short
Speculative
Long
Commercial
Short
Commercial
28,829
29,474
47,939
62,494
+754
-1,504
+1,083
-3,662
During the holiday season, and during the time frame where gold traded in a quite narrow trading range,
movement among the ownership classes of gold futures was most sedated. In general, speculative forces
were buyers while the trade sold, but just a little. The speculators are now very finely evenly balanced
and it would be highly unlikely to see a sharp rally or a sharp break in prices without any external
stimulus. We need to break out of our current range to see volatility and interest in this market increase.
SILVER
Long
Speculative
Short
Speculative
Long
Commercial
Short
Commercial
32,058
8,990
12,471
45,598
+250
-4,850
-1,716
+4,111
During the relevant time period, silver only rose by about two cents in value, as open interest declined
slightly. Please notice that virtually all of the buying in this market was due to covering of short
positions by the speculative crowd. Their buying was accommodated by the commercials that are
selling even though futures are in backwardation. Those commercial sellers are now losers to the tune of
about 15 cents per ounce, a rare occurrence as the trade usually makes money from the speculators.
But, just on the face of it, it might appear that the recent rally is just short covering, and there isn't that
much more of it that will happen. This must be considered another danger signal to the bull case.
PLATINUM
Long
Speculative
Short
Speculative
Long
Commercial
Short
Commercial
1,528
0
3,370
5,516
+468
-196
+240
+471
I really don't remember ever seeing any category showing a negative. This means that not one
speculative account with a platinum position has a reportable position in the market. The long
speculators will cover their positions should we break some technical support areas and, as such,
recommendations are below for taking advantage of such. After all, they cant sell their long positions to
the short speculators as there aren't any, and the commercials will just sit back and watch.
In silver, we have seen a surprising increase in Comex warehouse stocks even though prices in London
are averaging about 5 to 7 cents over New York. We are now at a bit over 105 million ounces, a recent
high.
Over the past year or so, as the Swiss Central Bank has been disposing of their gold, we have seen about
* to 2/3 of a ton being sold, on average, every day. That rate of sale is now being picked up as the Swiss
authorities sold over 22 tons in a 10-day period. Everyone watches the Bank of England auctions very
carefully but it is the Swiss who are selling much more, and much faster and are most probably a much
greater influence in the market.
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