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-- Posted Thursday, 6 February 2003 | Digg This Article
1415 Sherman Ave. #504 Ph: (847) 733-8400 Evanston, IL 60201 Fax: (847) 733-8958 E-mail: lkaplan@prospectorasset.com February 05, 2003
For markets of February 6tt
CLOSES
APR GOLD 377.20
MAR SILVER 4.768
APR PLAT 674.4 | INDICATIVE LEASE RATES
Based on 30 day maturities
GOLD 0/.50%
SILVER 0/.50%
PLAT 8.00/15.00% |
MARKET COMMENTARY
GENERAL COMMENTS: In the last commentary, it was made very clear that I envisioned very significant risks in the precious metals markets, and yesterday bore out the danger of holding long positions in the market without close stops. It was the classic "Buy the rumor, sell the fact" scenario. As Colin Powell made his presentation to the United Nations, it became clear that there was no "smoking gun", that while his arguments were very convincing in their presentation of circumstantial evidence, it became apparent that the imminence of war had receded, and the longs in the market started to liquidate. Within a 24-hour period, gold dropped from its highs seen in the Far East of about $390, to its lows seen in the same time period of about $368, some $22 lower in just one day. Silver traded from $4.98 to $4.74, a quick 24 cents. As Tocom was limit down last night, and as we will begin the New York Comex session at lower prices, I would believe odds favor more long liquidation in both trading centers. The gold market remains very long at present, with speculative interests carrying historic RECORD long positions. In conversations with my brokers on the floor of the exchange, they informed me that their "book" (open orders yet to be executed) is HUGE on the downside, with sell stops all the way down. While it could be thought that the recent price debacle in gold alleviates the risk of lower prices, in my opinion, it only exacerbates the risks. Please understand that "risk" is not certainty, but only a possibility. But, all will still depend on the geopolitical situation and the headlines. In my last commentary, I did not recommend short positions in the metals, but simply recommended using close stops on long positions. I continue to take this perspective. And, I have been made aware that gold margin requirements have JUST BEEN RAISED by the exchange, and have been raised very sharply. Minimum speculative initial margin requirements will rise from $1350/contract to $2025/per contract, over 50% higher!! The classical interpretation of such a change is that the small speculators, who trade with little reserve capital, who all happen to be on the long side, will be FORCED to exit their positions. More reason to believe that we go lower. Technical support levels in the gold market should be seen near the $368 price level, where minor support comes into play. More significant technical support lies in the $360-$365, where a convergence of technical considerations indicates that gold should hold those price levels. However, a break under $360 would target $340. If such occurs, I would guess it could occur with a vengeance. Silver, as usual, is under performing gold, both on the upside and the downside, and had a most disappointing day, as expected and forecast by this commentary. Silver remains a "trading market", where you buy the dips and sell the rallies. My initial price target at which I would consider purchases would be the low $4.60’s. Platinum is some $30 off its recent in just a day or two and the bull run seems to have turned. We have had a truly monster rally in this market, mostly fueled by speculative buying in the Far East, and while lease rates remain firm, while the fundamental supply/demand situation is still rather positive, we could certainly see sharply lower prices, somewhat retracing this move. Clients of the firm, and traders who follow our recommendations exited this market and are now awaiting lower prices at which to reenter. We have recently seen a growing demand in the Far East for the precious metals, although it appears that such demand has manifested itself in the purchase of futures and derivatives, and not the purchase of the actual physical product. However, such evidence of the lack of sizable physical buying is simply anecdotal, but if factual, that would leave the recent purchasers of both gold and platinum in the Far East losers in their positions at this point in time. As such, it is reasonable to consider that we may see further long liquidation from that trading center. Buyers of physical gold, not leveraged, may be concerned over the recent $20 drop in prices, but they are probably not sellers. However, highly leveraged futures and derivatives contracts are usually exited quickly by the rather risk averse Japanese traders. The possibility of a strike continues at Norilsk, the giant precious and base metals producer in Russia. Although some talks have occurred, a resolution has not been reached and one labor union will be going on a one hour strike today. And, its leaders have also initiated a hunger strike in their demands for higher wages, longer vacations, and the better disclosure of information by the company. Although such news is certainly supportive of the price, it is only somewhat so. Gold production in Russia continues to expand as that nation exploits its vast natural resources, often with the aid of Western firms. In 2002, Russia produced 170 tons of gold and analysts expect 200 tons per annum in the next two to three years. GOLD RECOMMENDATIONS: Expected trading range $360.00 to $380.00 Good technical support exists around the $360-$365 price level with resistance at the $380 to $382 price level. Look for excessive volatility and dangerous conditions and all that matters is the news. Day traders should pick their points carefully and use rather tight stops. Staying on the long side makes a whole lot more sense, especially when buying at support levels, and watch the foreign exchange markets carefully. These are dangerous times for day traders especially if you take the short side. And, of course, the news is all-important. For position traders, the times are difficult to judge. I would like to start buying gold in the $342 range, building a position all the way down to $328, but that may never happen. Lets try to buy a dip to the low $360’s and use a $5 stop on the position, but do it lightly. Also, sell some out of the money puts at $325 or $330 to replace the positions lost to the options we sold. And, now is the time to buy some insurance, buy some bull call spreads, but only in smallish quantities as buying options is rarely a good idea. SILVER RECOMMENDATIONS: Expected trading range $4.65 to $4.88 Day traders should be playing the range here. Short positions in silver are a lot less dangerous than short positions in gold it would seem, so when you want to be long, buy gold, and when you want to be short, do it in silver. Position traders, and traders who follow our recommendations, are now delta neutral on silver, waiting to reestablish long positions at lower prices. On dips, sell out of the money puts. Large accounts could be just slightly short. PLATINUM RECOMMENDATIONS: Expected trading range $650 to $700 Clients of the firm, and traders who follow our recommendations, are now out of the platinum market as risks have increased as prices have gone higher. I would be a buyer on a retracement in prices. I am long term bullish on palladium and continue to recommend adding, carefully, to positions for a long-term move. Call our offices for recommendations. Prospector Asset Management, and its sister company, Prospector Metals LLC offer the following services: *Brokerage of commodity futures and commodity options *Managed and directed speculative accounts in commodity futures and options *Brokerage of physical precious metals *Consulting Services *Daily Newsletter and Special Reports on the Precious Metals A complimentary subscription to the newsletter, with specific recommendations and positions, is available upon request for a one-month period. Futures Trading is for individuals willing to accept a higher level of risk for the opportunity of greater returns. This information is obtained from sources considered reliable, but its accuracy is not guaranteed by Prospector Asset Management. The recommendations reflected are those of Prospector Asset Mgmt. and are based upon circumstances it believes merit such recommendations. It is possible that other brokers or analysts may disagree with our opinions based upon their current commodity research or the analysis of commodity trading advisors. Expressions of opinion are subject to change without notice. Reproduction or rebroadcast of any portion of this information is strictly prohibited without the written permission of Prospector Asset Mgmt. There is a risk of loss trading futures. You should carefully consider the risk associated with futures trading in light of your specific financial position. Past performance is no guarantee of future performance.
-- Posted Thursday, 6 February 2003 | Digg This Article
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