METALS – New Wave Higher?

Name: Francisco Ramirez Company: Archer Financial Services

Years Trading: 7 Favorite Movie: Revenge of the Nerds

The last several weeks have been tumultuous for various markets to say the least.  The Metals markets were not immune to this wave of volatility.  After posting new highs in Copper, Gold, Platinum, Palladium, and Silver – a mass exodus hit all those markets around the time of the Fed’s latest rate cut.  The big question that many investors are asking- “Is this an opportunity to buy into these markets or is it best to stay away and maybe even sell?”

I believe that the metals markets are in a quandary of sorts.  On one hand you have the slowing industrial demand caused by a seemingly world-wide fear of a US recession and economic global slowdown.  On the other hand, the fear of inflation both in the US and abroad has traditionally bided well for markets such as gold and silver.  The weakening US Dollar also contributes to a bullish outlook for all these metals.  Yet, it is inevitable that high prices will hamper jewelry demand and affect industrial or construction demand worldwide.  Ultimately, one may need to simply look at the charts and decide the risk/reward of entering a position in any of these markets.

GOLD:  I believe that this recent sell-off in gold is an excellent buying opportunity for anybody that has missed the rally.  The recent pullback was roughly 50% off the highs to the support level established in the 4th quarter of 2007.  Combine this with a Slow Stochastics Indicator that is showing a bounce off oversold levels and the ODDS of a run higher here are pretty good.  Factor in that the US dollar continues to falter, down 6.5% since mid-February, and we face inflationary pressure, the 4th Quarter Personal Consumption Expenditures Price Index Excluding Food & Energy Rose 2.5%, then I predict that the market will test and break the recent contract highs before the end of the 2nd Quarter.
 

 
(June Gold Futures, Daily w/ Fibonacci Retracement & Slow Stochastics)

PLATINUM & PALLADIUM:  I recently wrote an article detailing some of the factors affecting the Platinum Groups Metals Markets.  Not much has changed in the interim in terms of the variables but there was a strong run higher in prices since my original article on 2/15/08 – the fast $130 per ounce move higher hit a wall and then sold off hard.  Palladium is trading back to the level on 2/15 and again looks like a BUY.

 

(June Palladium, Daily w/ Fibonacci Retracement & Slow Stochastics)

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.  COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS.

The Platinum chart exhibits many of the same characteristics seen above.

The ratio price between platinum and palladium continues to trade roughly between 4.0 – 4.5 in favor of platinum.  With a chance for autocatalyst composition to switch back more towards palladium, this ratio could pullback towards the 3.5 area later this year.

 

(Platinum vs Palladium Ratio Price, Weekly Continuous)

MISCELLANEOUS:  Copper inventories at the LME have shrunk over 40% since early January.  Copper prices have risen over 25% since then.

South African power problems remain which affect mining activity.  Down the road, look for these problems to be resolved and possibly shift market sentiment in the Platinum Group Metals.

Another fund that will concentrate on precious metals, miners, and renewable energy will launch on April 1st.  As more fund money enters these markets, expect the volatility to remain high.  As most of these funds are buy-side oriented, expect a bias to the upside.  Ponzi scheme anyone?

INVESTMENT STRATEGIES

I think that all the metals markets are in a “buy” mode.  Until the market proves otherwise, any pullback should be bought.  With the increased margins for these and other markets, it’s very difficult for traditional “retail” investors to take advantage.  However, a structured trade with options can be used to accommodate most investors.   

Contact me if you are interested in going over strategies to capitalize on these or other markets.  I am currently offering a free CD-ROM with historical strategies on the grain markets.  Email me your contact information and best time to reach you at Francisco.ramirez@archerfinancials.com or call me at 1.877.377.7920 between 9 AM – 2 PM CST.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.

Francisco “Cisco” Ramirez
Archer Financial Services
141 W. Jackson Blvd.
1600A - Board of Trade
Chicago, IL 60604

www.archerfinancials.com

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