Earlier this year at the end of April, silver and it’s exchange traded funds iShares Silver Trust (SLV) began to launch their booster rockets and go “parabolic” trader parlance for a vertical move upwards. The relative strength index (RSI) during that period peaked around 89. Silver hit all time highs of $50, and created a topping tail or reverse hammer, a very bearish indicator and then swan dived 20%.
The fundamentals behind gold’s price action are different but in some ways the same. Gold has been in a strong uptrend for well over a year now. The reasons for this continuously positive trend are varied, a weakening dollar, fear in the markets etc. New language has entered the lexicon of investors, credit default and debt rating downgrade. These two hugely bearish terms have become catalysts for much fear and panic in the equity markets. The results of which are extremely volatile down days that have erased all of the gains of 2011.
When in fear, people run to the exits (as many have) or they run to safe havens, such as gold. Read More…
By Raghu Gullapalli, contributing writer , as originally published on Minyanville
Value investors, such as Warren Buffet, William O’Neil and Jordan Kimmel are all big proponents of the idea of buying low and selling high. All these extremely experienced investors also look at historical patterns and are always on the hunt for bargains.
Or as traders refer to it, “buying into a pullback.”
Since its ballistic drive up in late April to create new historic highs, silver has plummeted down and the market saw the kind of volatility many traders thought gone in the post financial crisis era. But rather than continue its freefall to price levels that this writer thought were more in keeping with its historic norms, silver defied expectations and has consolidated in a $5 range over the past seven weeks.
By Raghu Gullapalli, contributing writer
Just this morning an absolutely abysmal jobs report was released. This latest news on top of the steady stream of poor economic reports over the past week will no doubt conspire to push the market down. The S&P 500 is down to 1,300 levels and may well seek out the long-term support at 1,250. And on top of all this domestic turbulence, lies the desperate situation in the Eurozone and their dealings with the PIIGS; Portugal, Ireland, Italy, Greece and Spain.
Economists of all stripes are talking about a double dip recession and under those circumstances you would think there would be a flight to the security of precious metals. While recent increases in margin requirements may reduced the fervor for such investments than in recent months, it will not completely dampen the enthusiasm of many for Exchange Traded Funds (ETF) that can be erstwhile proxies. After all in the midst of all this new terrible news, what is the dollar doing? Tanking!
Much of the speculation has been shaken out of the Silver trade, especially after the dramatic 30% pullback from its all time highs in the first two weeks of May. Despite these more reasonable prices, and its recent range bound state, there has been little or no appetite for Silver. iShares Silver Trust (SLV) is continuing to trade below its 55 day moving average but comfortably above the 210 day moving average. Smartstops has the short-term stop at $33.09 and the long-term stop at $32.58
In contrast to Silver, Gold has not altered the direction of its movement significantly on the long-term chart. If you look at the SPDR Gold Trust (GLD), five-year chart, the price of the ETF is in a strong upward channel and despite the volatility in early May looks to continue its longer-term trajectory. This supports the opinions of many analysts and Gold bulls that project $1,600 Gold by the end of 2011 and may even lend credibility to the idea of $2,000 gold. Smartstops has the stop price of GLD at $146.84
by Tony Daltorio, contributing writer
Even after a sharp sell-off on commodities prices, the spot price of platinum remains within reach of a two-year high. That high was hit last month at around $1,870 per ounce.
The consensus in the industry is for higher prices in the coming years. And this is despite the disaster in Japan, whose automotive industry is one of the biggest consumers of the precious metal.
Why so much bullishness?
The main reason investors, analysts and those in the industry point to is the challenges facing South Africa’s platinum mining companies. South Africa is the world’s biggest producer of the metal. It produced 4.6 million of the 6 million ounces mined in 2010.
Problems in South Africa
Some metals have seen a spectacular appreciation in dollar terms. For instance, palladium has quadrupled from its lows in late 2008.
However, the prices South African miners receive are not keeping pace with costs.
A basket of platinum, palladium and rhodium weighted for the level of the average South African miner’s production has risen just 4 percent in rand terms in the past 12 months. This is according to Walter de Wet, head of commodities research at Standard Bank.
That compares with cost rises of 8-9 percent in wages, 25 percent in electricity and 18 percent in fuel.
Because the mining companies pay costs in a strong currency but take payments in a weak currency, the rand’s strength against the dollar erodes earnings.
The rapid increase in costs means prices are unlikely to fall far from current levels, most analysts believe.
And let’s imagine the scenario where platinum prices stay steady or even fall. It won’t be a pretty picture. Leon Esterhuizen, mining analyst at RBC Capital Markets, puts it this way: “If we get sideways prices for even a year you will see [mine] shutdowns.” He added that the big platinum producers are “running out of [profit] margin”.
Johnson Matthey, in its annual report, also stated that platinum prices would not fall far from current levels of $1,765 per ounce.
Its annual report estimates a net surplus of just 20,000 ounces of platinum at the end of 2010. This is down from a surplus of 635,000 ounces the prior year. The drawdown was due to last year’s recovery in car manufacturing.
But even if the price of the metal does rise, do not expect the normal supply side response.
Due to the geological freak of nature, most platinum production will continue to come from South Africa and Zimbabwe. Although it should be mentioned that production is increasing in both Russia and North America.
With the notorious power shortages in South Africa, the mining companies simply do not have enough reliable electricity to expand production at their mines. This in itself will support platinum prices.
For investors looking to profit from rising platinum prices, perhaps the best way is through the use of exchange traded funds. One such ETF is backed by actual physical platinum. It is the ETFS Physical Platinum Shares (NYSE: PPLT).
If one does purchase PPLT, an investor should keep in mind the well-known volatility of precious metals day-to-day prices If one does purchase PPLT, an investor should keep in mind the well-known volatility of precious metals day-to-day prices. Make sure to properly manage your risk via position sizing. A free calculator is available at SmartStops.net.. It’s the way all intelligent investors should manage risk in our 21st century markets. .
by Raghu Gullapani, SmartStops.net contributing editor
SLV, GLD, USO, DBC
A rare halt in oil trading Wednesday triggered a sharp sell off in commodities and equities, in markets afraid of an encore of last week’s commodity plunge. The last halt in oil trading occurred in September 2008, a week after the collapse of Lehman Brothers.
Silver lost 9% in the sell off, erasing gains in the previous couple days and is down another 6% in the pre market (as of when this was written). It has yet to find a bottom or to a paraphrase Bob Barker, of the Price is Right, “Down, down it goes, where it stops no one knows.” Now with the increased margin requirements driving a number of speculators out of the market, the precious metal may seek out price levels more in keeping with historical norms. Those prices are calculated by seeing how many ounces of silver are needed to buy an ounce of gold. Over the past ten years the ratio has been roughly 60:1. If silver were to return to a similar ratio, it could go down as far as $25 an ounce. iShares Silver Trust (SLV) the proxy we use in lieu of silver at Smartstops.net has the short-term stop at $31.97 and the long-term stop at $29.37
It that wasn’t enough to make you reconsider being long commodities, Powershares DB Commodity Index Tracking ETF (DBC) has formed a Head and Shoulders. A pattern associated with a change in trend direction. The neckline/support of the pattern, coincides with the Smartstops.net short-term stop at $28.16 and the long-term stop is $27.30
On Wednesday, the CME group raised margin requirements on trading soybeans futures contracts, shortly after the Chicago exchange increased margin requirements to curb silver and cotton trading, further boosting the appeal of exchange traded funds (ETFs) which enable investors to gain exposure to these commodities.
Margin requirements are the minimum deposit, or cash, that a trader is required to put with up an exchange to cover inherent risks involved with trading commodities. When compared to stocks, in general, commodities are traded in margin accounts, where traders has the ability to control contracts with values a lot more than what they have in accounts. Read More…
As the investment demand for precious metals continues to remain high, ETF Securities, the first US ETF provider to provide investors with access to a full suite of precious metal ETFs, recently surpassed the $2 billion mark for total assets under management. Read More…