Wednesday, September 15, 2010

Some Precious Metals are More Precious than Others

Everybody is following the record prices in Gold these days. In fact they have been following Gold for several months now. This includes the new barber I went to today, cab drivers in New York City, my mom, the guy in the kiosk at the mall and everybody else you know. Here is why:

Gold Futures Continuous Contract 10 Year Chart

This is a 10 year chart and there is no doubt about what direction this metal has been heading and where it is heading. Even my three year old daughter can tell me the trend, even though it has been going on for more than 3 of her lifetimes. What about other precious metals though? They do not exhibit the same trending for this long period.

Gold Futures Continuous Contract 3 Year Chart
Let's zoom in on Gold to a 3 year chart you see a peak in March 2008 at 1034 and a trough in October and November of 2008 at 681. Since then Gold has moved up to highs in May and then today's new high close at 1268 or a 166% retracement of that move.

I chose this period because there is a similar peak and trough in the charts for Silver, Palladium and Platinum at these same places. Gold has always been a little bit different, despite being a precious metal. It tends more towards the non-tangible (inflation hedge, caveat currency...) and the cosmetic. Silver has similar desirability for cosmetic purposes but also has industrial use, and Palladium and Platinum are nearly totally used for industrial purposes. What do the charts for Silver, Palladium and Platinum look like over this period?

Silver Futures Continuous Contract 3 Year Chart
Silver peaked at 21.44 in March 2008 and hit a low 7 months later at 8.65. Since that time it has risen to close today at 20.58, retracing 93% of the down move. It had an interim peak just shy of 20 in May as well.

Palladium Futures Continuous Contract 3 Year Chart
Palladium peaked at 600 dollars in March 2008 and fell to 160 its low 8 months later. Since then it has risen to 567.50 in May 2010 and is now approaching that again closing today at 553.80. Today's price is a retracement of 90% of the 2008 down move.

Platinum Futures Continuous Contract 3 Year Chart
Platinum peaked at 2299 in March 2008 and bottomed at 752 that November. Since then it also had an interim peak in May 2010 near 1750 and closed today at 1607 a mere 56% retracement of the 2008 move lower.

What to make of these three charts in comparison to the Gold chart? First, they all have a long way to run if they were to mark their respective improvements from the November 2008 lows on the same scale as Gold. A 166% retracement would put Silver at 29.88, Palladium at 890 and Platinum at 3320, double where it is today. I am not forecasting these numbers as targets only pointing out how little these metals have moved in relation to the Gold move. The second point is that the peaks in May for Silver, Palladium and Platinum clearly illustrate how each metal is correlated to the stock market as this is just a one month lag to the top in the S&P 500 in late April. In fact Gold also peaked at this time but never really fell. Silver had the shallowest plunge and Palladium and Platinum, the two industrial metals, had the deepest plunges and are having the longest lag to recovering their highs, like the S&P 500. These two are clearly the most tightly correlated to the stock market. With the moves in Palladium and Platinum today, however, all are now breaking higher toward Gold. Will they all retrace 166%. Probably not but if the stock market does start to rise again look for the stars to be Palladium and Platinum from that point.

Trade'm well.

1 comment:

  1. In my opinion, PALLADIUM is the best of the metals here. I think Gold is a bubble and will eventually burst. Silver is ok. Platinum is expensive. PALLADIUM has alot of (industrial) uses and is also precious.Plus, as long as we drive cars, we are going to need it,especialy with demand for cars going up.