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-- Posted Monday, 12 May 2003 | Digg This Article
Sherman Ave. #504 Evanston, IL 60201 Fax: (847) 733-8958 Ph: (847) 733-8400 E-mail: lkaplan@prospectorasset.com May 11, 2003
For markets of May 12th Closes | INDICATIVE LEASE RATES
Based on 30 day maturities | | APR Gold $348.90 | Gold .00/.50% | | MAR SILVER $4.795 | SILVER .00/.50% | | APR PLAT $634.10 | PLAT 5.00/12.00% |
MARKET COMMENTARY
GENERAL COMMENTS: As the USD continues its death spiral, down almost 2% for the last week, the precious metals continue to rally, faithfully acknowledging their negative correlation to this currency . Gold had a splendid week, up $7.60, as good buying interest was seen from diverse sectors. Silver, which had preceded the rally in gold over the past few weeks, was virtually unchanged. Platinum prices rocketed skyward by $37, as both commercial and speculative buying reentered this market, especially from the Far East. Palladium was up a smidgeon, $1.50 for the week, as this market seems content to chart out a longer-term bottom. As noted above, the gold market has had one, and only one, significant influence of late, and has been a true reflective image of the foreign exchange markets. Since April 1st of this year, the USD has fallen by 4.44% (using the Dollar Index) to date, as gold prices have risen by 4.36% during this time period. With the wild speculative rush into gold seen during the weeks preceding the Iraqi War now over, with the investment gun-slingers and cowboys having come and gone, the gold market has now reverted back to its original long-term trend, a secular bull market, due to its appealing fundamental considerations. This forces us, now, to consider the fate of the USD, both long and short-term. Over the longer –term, I believe that there is little doubt that the USD will head lower, and there are very few analysts who take the opposing view. With USD interest rates lower than almost all of its counter parties, with the massive deficits projected, and with US financial regulators already shouting about priming the printing presses, there is little argument about which direction the USD will head. But shorter-term, many of the technical indicators that I faithfully follow, show that the USD is oversold, that the gold and silver markets are overbought, at least temporarily. Such technical indicators are simply tools, simply a small warning at best, and frankly, are not as reliable as one would hope. And, please remember that a bit of price consolidation at current levels, or levels slightly lower, would "heal" these charts in a matter of weeks. But, all in all, with gold and silver now flirting with significant technical resistance levels, I would believe that the odds favor that we go perhaps a bit lower, but not much. Or, enter into a period of the consolidation of prices. The $355 to $360 price level in gold is going to be a hard nut to crack easily. Similarly, the silver market has approached the $4.80 to $5.00 price level many times over the past years, and has universally failed. But all is dependent upon the movement of the USD, but odds favor the market seeing either a consolidation of prices, or a slight pullback. Long term trading or investing requires entering a market properly, utilizing sound money management techniques to enhance the gains such as writing covered calls, and a goodly amount of patience. Shorter-term trading is vastly different, as one attempts to ride each "wave", exiting a market and then re-entering as the probabilities are changed. Clients of the firm, and subscribers who followed our advice to use trailing stops in gold were lucky enough to exit their positions at quite high price levels, as gold dropped from the silly levels of $390, and were able to repurchase their positions at levels near $330.00. While the short-term outlook for gold may be slightly negative to stable, I am very convinced that there is very little chance for a substantial decline in price values. Unless something untoward occurs in the value of the USD, I see the gold market heavily supported in the $335 to $340 price level. Trading strategies should be utilized, short-term only, to accommodate the current probabilities. Another data point for the gold market is that it is likely that demand for gold in India will most likely be weaker in the coming weeks and months. Not only is the "wedding season" just about over, but the sharp rally in gold prices over the past weeks will have forced many buyers to the sidelines. Time and time again, we have seen that the Indians are buyers on dips, and not rallies. I consider this to be a rather important corroboration of my market opinion. It is also a bit disconcerting that it appears, from anecdotal evidence, that gold producers, which have been THE MAJOR buyers of gold over the past year or so, were the buyers of gold at the recent lows. According to Macquarie Bank, the global hedge books of the gold producers were reduced by another 140 tons in the first quarter of this year. It was hoped that investor demand would have been the supportive force, but now it appears that, yet still, the global investor has not warmed up to the gold market. This will happen, in my opinion, at some point, but I must admit that I don’t understand why it has not happened as of yet, and what will be the trigger for their decisions. From a technical standpoint, silver appears to be at, or very close to, a short-term top. After all, we have been to these price levels on countless occasions and failed. Very small short positions seem advisable here, especially if long gold positions will be maintained. Recommendations will follow below. The platinum market continues its most volatile ways, surging strongly with demand reawakening in the Far East after their recent trading holidays. There has been much talk in the market that SARS would have a deleterious effect on platinum demand, and perhaps, such thoughts were the catalyst for the sharp decline in prices of late. But honestly, I don’t see it. While SARS is more fear than reality, at least at present, it seems unlikely that platinum demand would slump sharply due to this outbreak. I fail to understand how this minor epidemic will have a major effect on industrial demand, and even more so on jewelry demand. Certainly, there are short-term ramifications, and perhaps a very minor diminishment of buying, but I don’t see SARS as important to this market. Evidently, the market seems to agree, as it has surged over the past week. With gold strong, with the USD falling, it appears that platinum still wants to go higher. There has been a raft of new products lately, hoping to stimulate the gold market and to lure the global investor. The Australian fund, launched several weeks ago, which deals strictly in physical gold, held in London and traded in Aussy Dollars, has seen…well, very small success. There is talk of the Perth Mint offering a new product on the Australian market, and talk of an exchange traded fund coming soon for the USA. There are also numerous electronic, or internet based, gold accounts, of some sort or another. Some of these are regulated, and some are not. Some offer protection for the investor, and others just claim that advantage. It would seem that many are trying to reinvent the wheel, when it already exists, in the most advantageous form possible, the futures market, where, if you wish, the gold can be bought and delivered and kept in your name in a totally transparent, heavily regulated (where each customer account is held completely segregated), and where excellent liquidity is available about 22 hours a day. While the World Gold Council, and other entities, strive to create new investment options, they are simply ignoring the one market that makes sense. Sorry, but I simply don’t understand. OK, since I have already irritated the mainstream analysts and commentators in the industry, let me continue to do so. Last week, the Silver Institute announced that the structural deficit in the silver market dropped by 30% last year. This would mark the 14th YEAR IN A ROW that, according to this trade organization, that demand exceeded supply. They state that usage was higher than production by 67.4 million ounces, a little less than about 10% of total global production. Now, listen…put aside your preconceived notions and hopes and dreams, does it make ANY SENSE whatsoever that the market for silver has been wrong, and dreadfully wrong about silver for almost 15 years, while a structural deficit of supposedly massive size is occurring. In 1988, some 15 years ago, the silver price averaged $6.53, some 35% higher than current silver prices. The answer is obviously NO. While I still maintain that the financial markets can be based upon perception rather than reality, it is inconceivable that the financial markets can, and have been, wrong for a decade and a half. It is OBVIOUS that their numbers are wrong, or that global inventories are much larger than they forecast, feeding their supposed deficit. It is a wonder that they continue to promulgate such information. Sophisticated investors and speculators look for verification in the marketplace for their thoughts and hypotheses, and are trained to believe that, over the longer-term, the market is always right. Rule #47 in the Kaplan Trading Handbook is "don’t fight the tape". At least not for 14 years. The Chinese are continuing to liberalize their trade in the precious metals. Authorities have recently announced that platinum will be exempt from their 17% VAT tax when traded on the exchange. It is thought that platinum trading may commence in several months. The Commitment of Traders reports, as of May 6th, for both futures and options: Gold
Long Speculative
48102
+4033 |
Short Speculative
14889
-9572 |
Long Commercial
92585
-1057 |
Short Commercial
161696
+15780 |
Small Spec Longs
58546
-1788 |
Small Spec Shorts
22647
-5021
|
During the reporting period, where prices rose by about $9 per ounce, open interest rose by about 6,000 contracts, a most paltry rise. The key feature of the following numbers was that the rally was fueled by short covering, shown by the buying by both large and small speculative shorts. This is most definitely not a bullish sign, as commercials were very significant sellers during this period. As we have seen, time and time again, the money is made by following the lead of the commercials and "fading" (trading contrary to) the speculative crowd. The commercials are the professionals, they know the market best, and over the longer run, they tend to take money from the speculative crowd. The statistics above justify my current opinion of the gold market, that we go slightly lower or perhaps consolidate at best. But, overriding my thoughts, it will continue to be the foreign exchange markets that dictate the movements. But the odds favor slightly lower. Look for recommendations below. Silver
Long Speculative
35553
+10045 |
Short Speculative
8755
-7041 |
Long Commercial
24682
+6090 |
|
Short Commercial
73002
+11190 | Small Spec Longs
na
-na | Small Spec Shorts
na
-na |
Silver prices rose by about 24 cents during the reporting period, as open interest also rose. The speculative crowd, as always, were very heavy buyers near the top of the current trading range (lets say $4.30 to $4.90), while the commercials were happy to sell silver heavily. Time and time again, the speculators buy heavily, hoping that silver will "break out" above the $5.00 to $5.15 range while the professionals, the commercials, are most pleased to sell it. Now, sooner or later the speculators may be right, losing streaks don’t last forever, but the historical odds greatly favor the commercials. I prefer to play with the recent winners rather than the recent, and historically financially disadvantaged, speculators. This time could be the "charm" for the specs, but I doubt it. Recommendations will follow. Betting on underdogs may be emotionally heartwarming, but it is financially draining. GOLD RECOMMENDATIONS : (positions and recommendations are available to clients and subscribers only) SILVER RECOMMENDATIONS: (positions and recommendations are available to clients and subscribers only) PLATINUM RECOMMENDATIONS: Expected trading range $615 to $645 (positions and recommendations are available to clients and subscribers only) 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 Monday, 12 May 2003 | Digg This Article
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