The latest OMF Metals Report by Kevin Morgan:
Be careful for what you wish for! After an extended period of low volatility global markets have been shaken up thanks to an escalation in the Greek saga and China’s announcement of a wave of new measures in an attempt to halt the collapse of the Chinese stock markets. Traders love volatility, until they’re actually faced with it.
The dominant story has been how the Greece ‘No’ vote is going to play out. The situation looks messy to say the least and we look to be in for several weeks of market turbulence as the Europeans and the Greeks try and resolve their differences. European Creditors don’t seem to realise that the current approach has not worked, and are demanding more spending cuts and tax hikes that will see the economy shrink further. On the flipside, the Greeks turned up to last night’s Eurogroup meeting without any new proposal, and with the attitude that a No referendum vote was somehow a victory for their bailout negotiations.
Against this backdrop of uncertainty and speculation in Europe, Chinese stock markets have been plunging 30% in the past three weeks. Yet there’s been a distinct lack of safe haven buying. Sure a strengthening USD is a headway for commodities, but I believe the real issue is ‘Greek fatigue’. For too long this story has promised so much, for the bullion investor, and for so long there’s been a 11 hour concession. Many still believe some sort of interim compromise will be reached to keep Greece limping along.
Last night’s capitulation in precious metals, which saw Silver and Palladium plunge over 5% at one point, was based on frustration, but shouldn’t have come as any surprise to technical traders. Prices been languishing so perilously close to major support levels, that any minor setback in prices would trigger a bulk of pre-set sell orders just below recent support. My view is that last night’s capitulation is an opportunity. Bullion prices priced NZD have risen and benefitted from a recent fall in our currency. Now, following this clean out of the nervous bullion investors, an opportunity has arisen to benefit from undervalued metal prices.
Wednesday June 17th 2015.
Hi all, Gold had another wait and see week, treading water around US$1182 per oz. awaiting news on another Greek deadline due this Thursday. Today also marks the beginning of the FOMC’s two day meeting. The US central bank isn’t expected to raise interest rates, however many in the market are now factoring in a likely increase later in the year, with most punters picking September. Speculation has therefore favoured the USD, edging higher, and in turn weighing on commodities and commodity currencies such as the Kiwi. The good news for Gold traders is that the Kiwi has fallen faster and further than Gold and Silver, pushing up Bullion prices in NZ terms.
In uncertain times you can be sure of one thing… volatility!. With talks having stalled ahead of the technical deadline for an agreement on Thursday, the likelihood of a deal being reached is now almost non-existent. The Euro group finance ministers meeting is still scheduled to decide the “fate” of Greece, but there have been so many of these meetings it is hard to see this one producing anything concrete. It also looks like the market has become complacent, anticipating another last minute deal to be reached, so hence traders aren’t jumping into Gold… yet.
While Gold has had the benefit of safe haven support, the rest of the precious metal complex have struggled. Platinum and Palladium both are being dragged lower by a risk off sentiment swirling around the stock markets. Already this month Palladium has lost 6% to now trade at US$1,080 per ounce and Platinum has dropped approximately 3% to $732.45 per ounce.
I’m not a betting man, but I can’t see the benefits of selling precious metals at current levels, especially this close to major technical support and with such large event risk looming. Buying Call options appears best strategy ahead of tomorrow’s announcements.
By Adam Van Sambeek, Treasury Manager.
Last week I noted Gold’s test of the resistances just over US$1200, now we’ve seen long held support come under pressure this week. This all stemmed from last Fridays much watched US employment numbers which exceeded estimates, driving up expectations that the Fed would move sooner rather than later to increase interest rates. The resulting speculative jump in US dollar saw Gold fall below long held support around US$1175, which in turn triggered protective Sell stops placed just below this key level, spiking prices to US$1162 lows. Gold had declined in four of the five sessions last week as US data gradually confirmed the Federal Reserve recent minutes, which said declining first quarter growth was due to temporary factors like the unseasonably harsh winter. The Fed removed all calendar references in its forward guidance and said that recent economic weakness might be “transitory” in nature. This means that bank is now entirely dependent on data so a rate increase could happen at any future meeting.
Meanwhile in Greece, the country delayed last Fridays 300-million-euro repayment to the IMF until the end of June, increasing the risk of a Greek exit from the bloc. Concern over this situation however has failed to propel interest in gold. With investor sentiment for gold so weak, gold prices may well continue lower but I feel this is leading to a better buying opportunity. And given developments in Greece and with the potential for corrections in other asset classes, it may not be too long before the markets start looking for a safe haven again.
As for Silver, this has dropped below the $16 mark for the first time since May 1 and has struggled to regain and hold this level. Currently we’re sitting just below that at US$15.968 per oz. Technical charts indicate that we’re sitting on an ascending support line, which originated in March of this year. Silver should be viewed as oversold and therefore valuable to a corrective bounce. I’m a buyer of Silver at these levels with a protective Stops at 16.87.
By Adam Van Sambeek, Treasury Manager
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With the increase in popularity of red gold alloys, we thought it would be appropriate to share some information about what makes these alloys unique and how to address challenges that arise from the special properties of red golds.
– Composition of Red Gold Alloys.
Red gold alloys are characterised by a relatively high copper content. Copper has a higher melting temperature and different structure to gold and silver. This means that red golds can behave quite differently to most precious metal alloys. Lower carat red gold in particular may have a higher overall percentage content of copper, creating challenges when working the metal.
– Difference between Rose, Pink and Red gold.
Typically, red golds are described as either Rose, Pink or Red. This may vary between suppliers and recipes and is mainly based on the colour. Here are some typical examples for 18 carat red golds:
18K Red gold: 75% gold, 25% copper
18K Rose gold: 75% gold, 22.25% copper, 2.75% silver
18K Pink gold: 75% gold, 20% copper, 5% silver
Next week we will share some information on working with red gold alloys, particularly tips around melting, cooling, and fabricating.
It may be a shortened week, but already we’ve seen plenty of excitement. Monday saw a surprising spike in Gold prices, making a brief foray above $1,200, but with very little follow through, prices quickly retreated. I couldn’t find any explanation for this sharp jump in price, except that Mondays are notorious for thin volumes, and being the first day of the new month, we tend to see a fresh allocation of managed funds hit the market. Once again, Gold prices settled back into the regular trading range between US$1175 and US$1225.
Meanwhile, Greeks and officials from the ECB and the IMF remain locked in negotiations. Greece looks set to make a first repayment of 300 million euros to the IMF on June 5, but it’s still unclear how it will pay off the rest of its debt. The immediate concerns surrounding the looming debt deadline may have eased, diminishing part of gold’s safe-haven appeal, but it may not all be bad for Gold. If a deal is struck, its highly likely to see a resurgence in the Euro, driving US dollars lower and overall benefiting commodities. Last night’s upbeat German unemployment data and positive Greece talks saw the euro claw back 2.5% against the US dollar, its biggest gain in nearly 3 months.
Looking at other precious metals, Platinum has been the worst performing metal in the sector, sliding 1.4% through May. Palladium didn’t fare much better dipping 0.6%, underperforming Gold, which gained 1.5% and Silver, up nearly 4% on the month. I can’t find sufficient reason for the under-performance by the PGM’s, so I’m buying Platinum, particularly at current levels around US$1100.
By Adam Van Sambeek, Treasury Manager.
After a data filled week, precious metals still remain in relatively tight trading ranges, barely changed from this time last week. While we’ve still experiencing some whippy trading sessions, the ultimate outcomes have done very little to denote direction. Friday’s much anticipated US non-farms payroll data was viewed as positive on meeting market expectations. Revisions lower from last month’s pervious report perhaps tempered traders relief following a recent string of weaker economic releases. Although one piece of less negative data shouldn’t rise expectations of interest hikes happening anytime in June.
Across in China, news of further stimulus from China’s central bank cutting their one year lending rate by 25 basis points to 5.1% should have a positive flow on effect for commodities. These changes are aimed stimulating their slowing economy to reach its 7% growth targets. Expectations are that this is not the last stimulus, with further easing to follow in the coming months. Lack of commodity demand out of China certainly hasn’t gone unnoticed by the precious metals sector.
Closer to home, we’ve finally found some relief from a high NZD. Since the NZ Reserve Bank hinted it would cut interest rates if demand weakens and inflation remained low, many major banks have come out revising their interest rate forecasts. ANZ Bank is calling for interest rate cuts in both June and July, along with First NZ Capital calling for cuts. This resulted in sharp 2 cent correction in the NZD/USD. Adding fuel to calls for interest cuts, NZ employment data released late last week showed our unemployment rate for the first quarter remained at 5.8% vs expectations of a drop to 5.5%. Our rock star economy may be having Justin Bieber like fall from fame. This isn’t of course all bad, those holding Gold paid in NZD will be reaping the benefits. So noted in this report, I’ve fancied Gold in NZD terms, therefore the recent demise of NZD has seen Gold values in NZD climb 2%, while USD pricing remain stagnant.
Golds trading patterns appear to be forming a wedge, with declining highs, but with lows remain unbroken, forming progressively resilient support. This doesn’t mean that we can now assume a price floor is in place, it just highlights strong demand for Gold at the US$1150-1170 per oz. area. On the topside, we’ll need a break of US$1205 per oz. before we can feel more convinced about future higher prices. Otherwise we have a clear trading range in which we can sell into spikes around US$1200-1205 with protective stop losses close to US$1210 -1215 per oz. However, my preference is to buy on dips around US$1175-1180 per oz.
By Adam Van Sambeek, Treasury Manager
Gold backed up last week’s price gains, climbing back above our previously mentioned US$1180 resistance, reaching a 3 week high of 1195.30 overnight. Prices are on course to post their longest winning streak since January last year, with investors backing bullion over the past few days because of a slump in the dollar after the Federal Reserve’s cautious stance on the US economy and diminishing likelihood of an early rate increase. The dollar remains the main driving factor of gold price and traders will be looking very closely towards (Fed officials’) comments to gauge when and how rapid the rate hike will be.
As manufacturers we’ve observed that, while bullion sales may have waned, weak prices have spurred an increased in demand of precious metal for manufacturing into jewellery, semi-finished and/or final products. This anecdotal observation has been supported by a recent report from New York-based CPM Group, forecasting an increase of over 4% in 2015 of fabricated Gold products. Marking the second straight annual rise, and feeding my optimism of higher Gold and Silver prices. Demand is still out there, just that we’re observing it in a different form.
In last week’s report I pointed out an opportunity in Platinum, “at US$1116, this is undervalued considering fundamentals” and suggested that buying with “a view that we see a repositioning in the market which will carry Platinum to US$1175-1180 resistance levels.” Today’s platinum price now resides around US$1150, so we’re witnessing this correction unfold. If Gold continues its test of US$1200, then we should see our Platinum target met.
By Adam Van Sambeek
By Kevin Morgan
*Gold Hits Three Month Low *Silver Slumps, Eyes Major Support *Chinese Copper Imports Lowest Since 2011 *US Now on Daylight Savings Time