January 20th, 2001 For markets of January 22
CLOSES
FEB GOLD
283.40
MAR SILVER
4.345
APR PLAT
480.30
INDICATIVE LEASE RATES (based on 30 day
maturities)
GOLD
0.15% / 0.65%
SILVER
8.00% / 12.00%
PLATINUM
2.00% / 5.00%
General Comments:
As we feared, in recent commentaries, most of the precious metals had quite a drubbing this last week
with silver leading the complex lower, about a 30 cent drop, as speculative interest waned as the
"squeeze" in supply in Loco London silver began to unwind. Lease rates which were formerly in excess
of 20% on the bid, have now fallen to about 8%, still very lofty by all measure of historical perspective.
Gold, unable to convincingly break through the $290 technical resistance and damaged by the worst
result in history at a Bank of England auction, fell almost $6, having gone from the top of its recent
trading range, only to now test the bottom of this range. Ah, so utterly predictable and so profitable for
those traders who engage in such ventures.
Platinum was up $5 for the week, which I thought was quite surprising, while palladium shed $17 of its
price. The major news for these markets for the week was the admission by Ford of a $1 Billion USD
write off of losses from their holdings in the precious metals. There are those analysts in the market who
now suppose that Ford, and of course other large holders of inventories, will just consume their
inventories over the course of time and there are those who expect further sales by these entities into a
market which can barely accept any new supply. I am in the later camp and my bearish stance on
palladium has only grown more confident. Were it not for the annual delay in Russian sales of this
metals, we should see sharply lower prices, but that will come later as Russia realizes that a quick sale of
their holdings will garner higher prices than a slow sale.
GFMS came out with its scholarly treatise on gold and stated that gold producers, buying back their
forward sales, accounted for 3% of global demand last year and may turn sharply higher than that
number for 2002 as the combination of industry mergers, exceedingly low forward rates for gold, and
growing positive expectations for the gold price, combine to create the needed environment for lessened
producer selling and greater producer willingness to buy back their forward sales. To quote Mr. Philip
Klajwick, "This is in stark contrast with the pattern established during the 1990's, when hedging
generated an annual average of around 240 tons of supply". So, we swing from a time of exaggerated
supply to one, perhaps, of exaggerated demand. This trend was forecast by this commentary well over a
year ago, and is an underlying reason for our persistent long-term bullish attitude in this market.
GFMS is looking for gold to average $282 in the first half of 2002 as against $276 in the second half of
2001. Their forecast range was $270 to $295, and... to quote, "a sustained breakout is more likely on the
upside". I certainly agree with the later comment.
In the "I have never met a miner who wasn't bullish" department, Mr. Pierre Lassonde, the president of
Newmont Mining, who has just won the bidding for Normandy, a major Australian producer of gold, was
quoted as saying that gold has turned the corner and that he saw the price at around $350 per ounce in
the next three years. I would hope so, as many analysts have written that the price paid for this company
was rather lofty. Normandy still has about 7 million ounces of gold sold forward, and Newmont has
publicly stated its intentions to buy back such sales and to remain completely unhedged. So, Mr.
Lassonde is certainly in the position to help the chances of his gold forecast by following through on the
corporate philosophy stated by his firm.
It is this buying, and the buying by other gold producers, that will, in my opinion, create higher gold
prices in the next year. Yes, it would be even better if we could see an acceleration of the current trend of
real "investment" in gold (especially in Japan), and yes, it would be better if jewelry demand stayed very
strong even in the face of what appears to be a global economic slowdown, but given the facts, I am
friendly to the upside.
On to the Commitment of Traders reports as of 01/15/2002:
GOLD
Long
Speculative
Short
Speculative
Long
Commercial
Short
Commercial
48,408
14,297
51,662
113,538
+20,408
-7,298
-9,727
+23,651
Small Long Spec
Small Short Spec
40,295
12,986
+5,048
-624
During the relevant time period, gold ran up by about $5 (and is now lower in price) as large and small
speculators bought about 32,000 contracts of gold. Their sales were fully accommodated by the
commercials. Overall, it would appear that again, for the second week in a row, surprisingly, the
speculative crowd took some money from the commercials, a rather unusual circumstance. But, it would
appear that the screw is turning. Although the market has declined since these numbers were released,
and that some longs have sold their positions, it would appear that the gold market is overbought and
will be going lower. In previous commentaries, I had thought to begin buying in the $280 to $282 range,
and now I am not so sure. The technical picture looks rather poor and I would imagine it is going to take
a break of technical support levels near $280 to get the speculators to sell their positions. Please note
that large long speculators are 3 * times large small speculators and that this percentage holds for the
small specs. These sort of numbers indicate, that baring any unforeseen events, a washout could be
coming. Recommendations are below.
SILVER
Long
Speculative
Short
Speculative
Long
Commercial
Short
Commercial
41,149
3,957
15,733
67,299
+2,959
-1,088
-652
+3,088
During the time period covered by the numbers, silver was down about a dime. And now, it is down
another 20 cents over last Tuesday. The massive selling by the commercials, and stop loss selling by the
large long speculators has forced the market lower. And looks to force the market even lower still, IF
lease rates can be moderated. The commercials were, as usual, successful and profitable as the
speculators were encouraged into their previous over-bullishness. Just look at the speculative ratio, My
God, it was over 10 to 1!! No wonder the market turned, and turned so quickly. Previously, I had thought
that the recent decline would begin to moderate in the low $4.30's, now...I am not so sure.
Recommendations are below and I would ask clients of the firm to call for personal recommendations in
this market. Caution is still warranted on long positions.
PLATINUM
Long
Speculative
Short
Speculative
Long
Commercial
Short
Commercial
2,240
0
2,985
6,137
+356
0
-35
+451
These numbers are clearly telling us to stay on the short side of this market as the commercials just keep
selling to the speculators. As this "game" is all about money, I prefer to place my bets on the horse that
has the best track record, and that is the commercials.
There was an interesting statistic that I ran across. During the month of November of 2001, 56+ tons of
silver was exported to the United Kingdom as compared with about 19 tons the previous month. Please
note that this accelerated movement began prior to the "lease rate squeeze" , which started in earnest in
December of last year. Also, please note, that none of this silver was withdrawn from Comex
warehouses: it just emerged from the cash market. While the total is only 1.8 million ounces, one might
infer a greater symbolism from this statistic.
One of the cardinal rules in the gold market has been that the "Bank of England must receive the worst
price" and I would expect gold to fall slightly as we approach their auction of 20 tons of gold next
Wednesday. The BOE has lost well over 52 million pounds, so far, on their scheduled auctions of gold
and with 2 left to go, there is scant time for the trade to take money from such a willing donor of funds. I
fully expect that any bull market in gold will be held in abeyance pending such a donation by the BOE.
kitco.com |
