jueves, 27 de noviembre de 2014

jueves, noviembre 27, 2014
Precious Metals - The Day Of Reckoning Is Coming Soon
             


Summary
  • November 30 is right around the corner.
  • Silver and platinum may be signaling.
  • Chinese interest rate cuts/Russian gold buying.
  • A true hard currency.
  • Countdown... volatility ahead.

This coming Sunday, the Swiss head to the polls to decide if their government will be required to purchase 1,500 tons of gold over the next five years. An affirmative vote on the referendum would prohibit government officials from selling gold and will require them to repatriate the nation's gold reserves within Swiss borders. The gold market will hold its breath during a holiday-shortened week for the Swiss decision.

Silver and platinum are strengthening...

This past week other precious metals prices have shown signs of life. Gold, silver and platinum all had bullish key reversal patterns on daily charts on Friday, November 7, and again on November 14.

Last Friday, all precious metals once again were strong, gaining on the session. Platinum's premium over gold has moved back to $30 after trading down to just over $5 on November 19. The silver-gold ratio (the number of ounces of silver value in one ounce of gold value) has decreased from 74.5:1 to just over 73:1 last week. Silver led gold lower since late June, but the downside momentum of silver seems to have slowed of late.

The Chinese and Russians

China is the demand side of the equation for many commodities, and precious metals are no exception. The Chinese currency, the RMB, remains a non-convertible and illiquid currency instrument. With the growth of wealth in China, demand for gold has been strong. Many wealthy Chinese buy gold. Throughout history, gold has been a hard asset that holds value and is an internationally accepted vehicle of exchange. Late last week, the Chinese Central Bank cut interest rates. Lower interest rates tend to spur gold buying as they lessen the opportunity and carrying cost of holding gold. Lower Chinese interest rates are bullish for physical precious metals demand in China.

The Russians continue to buy gold, domestically and in the international market. So far this year the Russian Central Bank has added 150 tons to reserves. I suspect they have added even more from domestic production. Sanctions leveled on Russia by the West should continue to encourage Russian gold purchases on a governmental and individual basis.

Gold - a true hard currency

Governments around the world hold gold as part of their foreign exchange reserves. In a disturbing development, a group that wishes to become a legitimate government has declared metals as their currency. ISIS will not just back a paper instrument with metals - it will mint gold, silver and copper coins for currency. The Islamic State announced last week that it plans to begin minting its own coins, including a gold dinar, a silver dirham and a copper "feloos" for small change. Abu Bakr al-Baghdadi, the leader of ISIS, considers the establishment of a mint and currency as an essential building block for their goal of building an Islamic empire.

The Koran prohibits usury; therefore, it bans interest on paper currency. Gold, silver and copper coins, prevalent throughout history, contain intrinsic value. ISIS said the metal coins would be outside "the tyrannical monetary system that was imposed on the Muslims and was a reason for their enslavement and impoverishment." As ISIS has marched through parts of Syria and Iraq, it has looted banks, often emptying them of paper currency as well as precious metals hordes. It appears ISIS will employ the stolen metals to begin minting their own currency.

Countdown - volatility ahead...

I expect this week will be quiet in the precious metal markets. Polls in Switzerland are still showing that the referendum will go down in defeat. However, until all the votes are in and the Swiss government announces tabulated results, nothing is certain. I believe that this referendum is the most important development for the gold market in 2014. On Monday, December 1, the gold market is likely to move, if referendum results are available.

Given the potential for a big reaction to the referendum results, straddles on gold futures or ETF products may offer the best opportunity to take advantage of a reaction following the referendum. You do not want to pay a lot of premium for these options, so keep the expiration dates as close to the middle of December as possible. Key resistance for gold is now at the October 21 highs of $1255.60 with key support at November 7 lows of $1130.40. If either of these levels is breached, the price of gold could follow through in a big way.

In the meantime, keep your eyes on the price of other precious metals for clues. Silver, a less liquid market, led gold down. When it comes time for a bullish move, it is likely that silver will signal higher with signs of strength. Resistance in silver stands at the level it broke down from $18.1850.

Watch platinum as well. Rich-man's gold has been under pressure, but it has recently rejected lower levels.

There are bullish and bearish factors pulling at precious metals these days. A strong dollar is not positive for this sector but a yes vote on the Swiss referendum could trump any action in the dollar. A yes vote will mean a buyer of 1,500 tons of gold over the next five years. That is over 10% of annual production each year. A yes vote in Switzerland could be explosive for the precious metals sector.

Other bullish factors include increasing physical demand, Russian official and private sector buying, as well as potential Chinese demand as interest rates drop in an effort to combat sluggish growth.

On the other hand, disappointment if the referendum fails will likely send gold back down toward recent lows and perhaps lower if the dollar continues its ascent. For the time being, the day of reckoning is November 30.

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