Based on the January 20th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

There are certain dogmas held sacrosanct by precious metals investors and one of them is that platinum is supposed to be more expensive than gold. That’s just the way it is. Quite a few eyebrows lifted and jaws dropped last fall when the yellow metals price overtook that of platinum. The historic switch took place on Sept. 2nd when Comex gold futures settled at $1,875.25 per troy ounce, just above platinum’s closing price of $1,873 per ounce. When you consider the price history of the two precious metals—platinum has traded at a $200 to $400 premium to gold—the reversal was astounding. Just to give you a better idea, before the 2008 Lehman Brothers crash, platinum was trading at more than $2,270 per ounce while gold was trading under $990 an ounce.

Platinum is much more rare in nature than gold. More than ten times more gold is mined each year than platinum. Unlike gold, which is either held in bank vaults or used in jewelry, more than 50% of the yearly production of platinum is consumed (used up) by industrial uses, mostly in the automobile industry. Some 40% is used for jewelry manufacturing and 10% for investment purposes. The Japanese seem to be very fond of platinum as they account for 95% of the platinum jewelry demand. There are reports in the press of a nascent interest in platinum jewelry in India, expected to make up 25%-30% of the total Indian jewelry sales in 2012.

The annual supply of platinum is only about 130 tons, equivalent to only 6% (by weight) of the total annual gold mine production. It is less than one percent of silver’s yearly output. Unlike gold, there are no large inventories of above-ground platinum. Therefore, any breakdown in the two major supply sources, South Africa and Russia, would catapult the price of platinum. An even more intriguing fact is that more than 90% of the world’s platinum production comes from only four mines: three in South Africa and one in Siberia.

During economic expansion, platinum prices tend to outpace gold given its dual role as both a precious and industrial metal. But when the economy slows down, platinum can often stumble. For example, platinum dropped below the price of gold back in the early 1980s, pushing the spread below 1.0 for the better part of 5 years as the economy slowly recovered.  During the 2008 financial collapse, platinum prices fell from $2,252 to $774, a drop of nearly 65%. Both metals crashed. Gold nosedived due to hedge funds liquidations and investors dumped platinum bracing for a recession expected to flatten automobile sales. The metals reached parity in December 2008 as the price of platinum sunk amid the global financial crisis and a collapse in auto demand. Gold has since has put on a show stopping comeback reaching a high of $1,900 last summer, but platinum has yet to bounce back.  As this goes to publishing, the price of gold is $1,655 and the price of platinum is $1,515.

Let’s take a look at the chart featuring platinum. You will see platinum at the bottom of the chart below and the platinum-gold ratio in its main (charts courtesy by http://stockcharts.com.)

On the above platinum to gold ratio chart (if you’re reading this essay at www.sunshineprofits.com, you may click on the above chart to enlarge it), we see an anomaly unlike anything seen in recent years. There have been several small breakdowns below the level of previous lows but none have held.

Platinum’s extreme undervaluation is not something is likely to persist for much longer. The ratio is now at 0.92 and once it begins to move higher, much more platinum buyers are likely to enter the market. Platinum’s price below the one of gold is something that investors view as a buying opportunity (as seen on the above chart) so the only factor that remains in place – preventing prices from moving higher – is fear. Once it subsides as investors see that platinum is not breaking lower, they will buy. This action will likely result in platinum to soon be outperforming gold, something which has not been seen for some time (except earlier this year).

Summing up, it appears that the situation in the platinum to gold ratio and for platinum itself is favorable and if you’ve been planning to diversify your holdings, it might be a good idea to consider this particular metal.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It’s free and you may unsubscribe at any time.

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]]> http://thedailygold.com/commentaries/platinums-upside-potential/?p=12668/feed/ 0 http://thedailygold.com/chartstechnicals/platinum-to-gold-ratio-and-detecting-bubbles/?p=6883/ http://thedailygold.com/chartstechnicals/platinum-to-gold-ratio-and-detecting-bubbles/?p=6883/#comments Wed, 22 Jun 2011 15:59:05 +0000 Willem Weytjens http://thedailygold.com/?p=6883

An article on BespokeInvest about the Platinum-to-Gold ratio today drew my attention.
I therefore wanted to get to know more about this ratio. I knew that the ratio had been trading around 2 over the last 10 years, which was why I invested heavily in Platinum and its little sister metal Palladium in December 2008 and early 2009 when prices crashed, and Platinum became cheaper than gold (the ratio thus dropped below 1). When the economy rebounded, the ratio rebounded to 1.50, but the last couple of months, it has been declining again, and is approaching 1 again, as it is currently at 1.13 with gold prices around 1546 and Platinum around 1742.
I thus started to dig deeper and found historical data at kitco.com
I created an excel sheet with monthly average prices since 1968 which is available for download HERE.

Below you can see some interesting charts that resulted of some calculations in the Excel sheet.
The first chart is the nominal absolute price difference between one ounce of Platinum and one ounce of Gold.
We can see that the difference was skyhigh early 2008, and then crashed. It went even negative for a couple of days (not shown in the chart, as this chart shows monthly averages), meaning that at some point gold was more expensive than Platinum:

The second chart shows the Platinum-to-Gold ratio since 1968, and shows how many ounces of gold you can buy with one ounce of Platinum. From this perspective, it looks like the Platinum-to-Gold is very low at the moment, just like the article at BespokeInvest stated. However, this chart might be misleading, as the huge spike in 1968 takes away all the attention.

I therefore removed the data until 1971 in the following chart, which gives us a clearer image of the period from 1972 until today:
As we can see, the ratio was as low as 0.75 in 1982 and as low as 0.73 in 1985 (see the excel sheet for more detailed information).
The average ratio between 1972 and 2011 was 1.36. We can also see that the ratio found “support” at 1.00 a couple of times.

Can we detect bubbles using these charts? Maybe. Let’s check it out.

The Platinum-to-Gold ratio topped twice around 2.35: once at 2.34 in January 2001 and once at 2.31 in May 2008.
At both times, a major economic crisis followed, causing the ratio to drop sharply.
The ratio bottomed at 0.75 in September 1982, after the Gold bubble had popped a year earlier. So who knows, maybe this ratio might help us next time spotting a bubble?

Where are we now? Hard to say, although a ratio of 1 has provided support in the past.
If we use some imagination, we can see similarities between the early ’70s and today:

For people who want more information about why people invest in Platinum, I think this article from CPMgroup from 1995 might be an interesting read.

Short URL: http://profitimes.com/?p=3699

The full version of our analysis (with comments particularly valuable for Precious Metals Traders) is available to our Subscribers.

While a majority of investors, analysts and experts dwelt on gold and (to a lesser extent silver) in 2010, sister precious metals platinum and palladium notched up significant gains matching gains in the investment safe havens.  While gold and silver gained close to 30% and 80% respectively, platinum and palladium were nowhere lagging – gaining in the region of 20% and 100% in that order. We inspect long-term prospects of these lesser invested metals in this essay. A strong case for platinum and palladium makes for diversification of precious metals funds into these metals. This diversification of funds is of particular importance when Investors are being suggested to wait for medium-term corrections before stocks become ‘investable’ again.

Automobile Demand – Key Support for Platinum, Palladium
More than investment demand and close to jewelry fabrication, platinum draws well over a third of its overall demand from industrial applications in the automotive industry. Its use as an autocatalyst and extensive use in vehicle emissions control devices makes its demand fundamentals strongly linked to the demand of automobiles. This also makes platinum more sensitive to economic, industrial and market conditions. Palladium is also extensively used as catalytic converters in the auto industry – even more so than platinum.
Given the dependence of platinum and palladium on a sector like auto, prices of these precious metals react almost immediately to auto demand changes. While the recession hit auto sales in the US, platinum and palladium started to plunge way before most other commodities started correcting. With recovery in sales, platinum group metals have soared significantly in the past year or so.  Not surprisingly, when we talk about these metals, we first talk about auto sales.

One of the key developments for the platinum group metals over the past few years has been China’s rise to dominance as the largest auto market. China, along with India and the other BRIC nations (Brazil and Russia) has witnessed robust auto sales despite a drop in the US and Europe during the recession.

Turnaround in auto sales in the West has also been swift, thanks to government initiatives such as the cash-for- clunkers programs. The overall sales figures in 2010 have been encouraging and it can be safely concluded that the worst is behind us. The upcoming years will yet witness growth in auto sales, particularly in the developing world, which in turn renders prospects for the platinum group bullish.

Although, the removal of subsidy, rising fuel prices and stricter new registration laws are likely to hit the Chinese auto markets in 2011, China will remain a primary support for automobile manufacturing for the next few years. Another oriental economy touted to have the potential to replicate China’s growth story in the auto market is India. Both India and China have registered robust sales numbers while the auto market remained damped elsewhere in 2009 and progressed by leaps and bounds in 2010. India is home to well over 40 million passenger vehicles – a healthy 26% sales growth was registered in 2009 while the rest of the bigger auto markets were reeling, making India the second fastest growing automobile market globally.

Long-term auto sales data shows that the saturation in the auto sector in the US and Europe is more than compensated by a growing market in China and India. Additionally, unlike what looked apparent during the recession, sales in the developed markets will not plunge as sharply as expected. The health of the auto sector augurs well for platinum and palladium – we do not foresee any perceptible change in the dynamics of the auto sector at least for the next 2-3 years, which is as far as suggested long positions will aim.

Emission Norms to Boost Platinum Group Metals in US and Europe
Platinum and palladium are used in catalytic converters which reduce harmful emissions from automobiles. With even developing countries becoming conscious about cutting down vehicle emissions, the demand for catalytic converters with palladium and platinum should increase further.
The ailing automobile industry in the US just returned to profitability in 2010. Automakers are optimistic that recovery from one of the biggest downturns in history is gaining steam and will sales will remain strong for some years now. Sales figures in Europe were still damp in 2010; however, expectations are of a better year ahead with strong support from the region’s biggest market – Germany. The biggest support though from a saturated market in the West is its increasing emphasis on stricter emission norms.

The U.S. administration has revised the target of achieving a 35.5 mpg (miles per gallon) or 6.7 liters/100 km fuel economy to 2016, four years earlier than the initial target of 2020. The ambitious 40% rise in fuel economy, from the present standards, implies that even if fuel efficiency improves by half of the target, it would exert a positive influence on the demand for PGM.

The calculations numbers are only for the U.S., while standards that are even more stringent are intended for Europe, Australia and Japan. While Europe has targeted a fuel economy of 42 mpg by 2016, Australia is aggressively pursuing the 34 mpg target by 2010. These fuel economy standards are expected to impact industrial metals demand over the next five years. It is estimated that, approximately 15% of the automobiles will comply with the standards by 2012.

Is the Threat from Hybrid Vehicles Real?
Another key development in the auto industry, witnessed in the past few years, is the advent of electric/hybrid vehicles. There has been talk of hybrid vehicles rendering demand for PGM lower. Approximately USD 150 billion of the USD 787 billion stimulus package had been earmarked for green energy initiatives, including investment for the development of hybrid cars. With the auto majors such as GM, Honda and Toyota releasing various versions of hybrid electric vehicles (HEVs), it is expected to have a significant influence on the demand for PGM.

However, the good news (for platinum and palladium Investors) is that currently, HEVs constitute only a small proportion (less than a 3% market share) of the auto market – approximately 1.5 million units per year. The U.S. Department of Transportation’s expectations that, by 2012, the market penetration of HEVs will be approximately 30% of the total production, is surely not on track.

Given the current demand trends for hybrid vehicles, a slow to medium penetration will be the probable scenario in the next few years. Currently, HEVs do not present any price advantage over the non-hybrid cars implying that the market penetration will depend on the technological advancements, which could improve the financial viability of these vehicles for both manufacturers and consumers. Therefore, the penetration of HEVs is expected to be a slow process, which may take four to five years to take off in a big way.

Interestingly, despite claims of a dampening of PGM demand from the invasion of hybrid vehicles, some car makers are of the opposite view. Hybrid vehicles use a combination of a battery and a standard internal combustion engine. The use of a combustion engine requires the use of a catalytic converter. In fact, in many cases the catalysts used in hybrid electric battery/internal combustion engine vehicles use more PGMs than regular vehicles. Clearly, the threat is not due to hybrid vehicles but fully electric vehicles which have an even lower penetration level.

Overall, the threat from hybrid vehicles (if any) is compensated by a growth in demand for platinum and palladium due to stricter emission norms. And to think, the developing regions are yet to enforce strict emission norms as in the US and Europe. Once the developing regions also jump into the emission norm bandwagon, the threat from a not so fast expanding hybrid vehicles market will likely be well overcome. Add to that an expanding car market and a shrinking supply side and the outlook at least for the next few years is bullish. Fundamentally, prospects for the PGM group are positive for the long-term. Investors may time their entry after minor corrections in the short-term due to a run-off from sister precious metals and a pause in the current rally.

To keep yourself up-to-date with movements in the precious metals markets, we encourage you to subscribe to our Premium Updates, providing in-depth analysis and cutting edge observations. We also have a free mailing list (sign up today) that provides free 7 day access to our website, and you can unsubscribe at any time. Remember, as the gold rally enters this critical phase, investors will be well armed if well informed.

Thank you for reading.

Mike Stall
Sunshine Profits Contributing Author
www.SunshineProfits.com



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All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s or his associates’ essays or reports you fully agree that they will not be held responsible or liable for any decisions you may make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

With gold prices showing no signs of a breakout in 2011 so far, many investors have started unwinding long positions in anticipation of no further upside. The situation warrants a close scrutiny of the state of affairs. In the following part of this essay we analyze indications from the correlation matrix and technical indicators from silver and mining stocks to gauge the extent of this concern.

However, first, we would like to draw your attention to the fact that the London Bullion Market Association conducted its annual survey of leading analysts to ask them where the price for gold will go in 2011. A total of 24 contributors gave their estimates for the high, low and average price for 2011 for gold, silver, platinum and palladium. In 2011, Forecast contributors predict rises for all precious metals. Their average gold forecast is US$1,457, a 19.0% increase on the 2010 average price, similar to the forecast of $1,450 made by delegates at the 2010 LBMA Precious Metals Conference in Berlin last September. Analysts predict that the average silver price will be $29.88, a 48.0% rise on the 2010 average price. The average 2011 Platinum price is forecast to rise 12.6% from the average 2010 price, to $1,813 and palladium shows no sign of slowing down with an average 2011 price prediction of $814.65, a 54.8% increase on last year’s bumper average price.

Generally, when everyone gets bullish it’s time to sell, and when everyone is bearish it’s time to buy, so perhaps the situation is not really as bullish as it might appear at the first sight.

Let’s begin this week’s analysis by taking a look at the recent readings from our correlation matrix.

The correlation matrix shows that the short-term coefficients are not as significant as in weeks past. There appears to be a slight negative correlation between metals and stocks but this does not hold true for silver.

It seems that the medium-term coefficients (90-day and 250-day columns) are of more value at this time. Recent breakdowns have been seen in many of the markets this week but in most cases have not yet been verified. The situation is such that if these breakdowns are verified in the days ahead, the impact will likely be felt for weeks and therefore the medium-term columns will provide valuable insight.

Only the general stock market appears to have a significant influence on the precious metals for this time-frame. Therefore, if stocks decline from here, the same will likely be seen across the precious metals sector for they will be dragged down as well by the declining stock prices. Although the relationship is not clearly seen on a day-to-day basis (short-term correlation is weak), a bigger move in stocks is still likely to have influence one the precious metals sector.

Consequently, the most important influence upon precious metals this week seems to be the general stock market and the outlook for stocks appears bearish. An additional indirect influence comes from the USD Index and the sentiment here is bearish as well.

Because of its multiple industrial uses, any serious weakness in the main stock indices is likely to affect silver more than gold (charts courtesy by http://stockcharts.com).

Still, for now, silver’s long-term chart for silver shows price action similar to that seen for gold. There has been a breakdown below the long-term support level which has not yet been verified. This is a slightly bearish signal and, if verified and seen in other precious metals markets, will likely result in silver prices declining quickly as well. As we have often mentioned in past updates, silver is the least predictable of the precious metals and often follows the trends set by gold and mining stocks.

Today, it may also follow a quick decline in stocks, which we have yet to see.

Moving on to the mining stocks, the breakdown below 2008 highs is clearly visible on the XAU Index chart.

The XAU Index of gold and silver mining stocks saw a decline in excess of 10% since the beginning of the year. The previous increases have failed to hold the breakout above the 2008 highs, and at this moment the price is below this particular level. A move back to the 2008 highs will verify this recent breakdown. If this does indeed happen (mining stocks fail to move quickly above this level), further declines will be likely and perhaps a bet on lower mining stock prices would be in order.

If the big decline does come to pass, the XAU Index levels will likely move down close to 180 and nearly to the lower border of the rising trend channel.

Overall, if we see higher prices for mining stocks, which appears likely, and this increase is stopped by the level of the 2008 highs, this would be a strong indication that lower prices for the whole precious metals sector could soon be realized.

Summing up, given the size of the potential move in the precious metals market in either direction from here, one should focus on factors influencing precious metals in the medium term – and at this point it is the general stock market.

Meanwhile, we have just posted a special mid-week update with our next trade and explanation of a change concerning the long-term investment. In order to read it simply sign up today for our mailing list and you’ll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Gold & Silver Investors and Speculators. Mailing list is free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
www.SunshineProfits.com


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Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

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Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

“News flow is really, really important. If you’re going to play these kinds of stocks, especially if this is a sector you’re not that comfortable with, you want to get in at the start or before the start of a drill program and not at the end,” says Eric Coffin, co-editor along with his brother David of the HRA (Hard Rock Analyst) publications. In this exclusive interview for The Gold Report, Eric explains the importance of sniffing out upcoming news and timing in selecting potential resource investment opportunities.

The Gold Report: Let’s say you’re sitting on the sidelines with a great deal of cash right now. You’ve been following all the websites, the news and newsletter writers like yourself. Which end of the resource sector would you head to as a potential investment opportunity?

Eric Coffin: Obviously, with the resource sector, you’re talking a pretty broad spectrum of companies in terms of types of resources they focus on, but also level of development and overall risk. If I was fairly risk adverse (and the presumption that you’re sitting on the sidelines means you probably are), I suppose I’d go more towards the senior producer end of the sector. That’s not the end we normally put a major focus on. We made the decision some years ago that our strong suit was exploration and development-level companies. We do follow a number of producers because they have taken over companies we followed. This is nice, since it adds producers to the list at very low entry prices for subscribers, but we don’t usually initiate coverage on majors. You can certainly make the case that gold producers and base metal producers really haven’t seen the kind of gains that seem rational given what the metals themselves have done in the past year. So there is room there for gains.

You’d want to sit down and look through a company’s quarterly financials and read the MD&A (Management Discussion and Analysis). You’re looking for good performance, but you also want to see evidence that they’re going to expand production because that gives you a bit of a cushion. If metal prices are moving up strongly, anyone that produces them should see some share price gain. It’s nicer and safer if the company is also growing production. That should allow top-line revenue to grow even if metal prices are taking a breather.

Next down the track would be development-level stocks. These are companies that have a resource that is being expanded and/or moved forward towards a production decision. Companies at this level are popular takeover targets for majors. We’ve seen more merger and acquisition activity in both the gold and the base metal side and I think that’s going to accelerate. When markets fell in 2008, explorers and developers were hit the hardest. Few people other than us expected them to bounce back. Large producers thought they had plenty of time and were waiting for the perfect ratio between their share price and that of the company they were targeting. Well, it turns out that explorer shares moved back up quickly. Producers held off, but we think they are now accepting the fact that the perfect ratio they were hoping for may never arrive. There are new players in the market like the Chinese, who have been very aggressive. Larger companies are starting to bid on juniors before someone else beats them to it. We’ve seen a couple of recent takeover offers, including a company on our list, that we did not expect this soon. If majors have decided they need to move on these transactions sooner we will probably see much more M&A activity later this year.

TGR: Are you looking at high-risk/high-reward projects and potential acquisition plays with regard to the juniors?

EC: Yes, both. There are two schools of thought in the sector. There are guys that look for projects where they can make a discovery and carry out high-impact exploration projects. They are usually hoping for an eventual takeover offer as the end game. The other common approach is the joint venture model. A company will try and accumulate a large number of prospects and try to option them to other companies so someone else is spending the money. Joint venturing secondary projects is a good idea, but overall we would favor companies working their own marquee projects rather than the pure joint venture model. If the markets are good and they have been lately, strong management groups can raise money. Successful projects will allow for more fundraising on better terms. A company’s net dilution is often less this way than through an option agreement where the company gets earned down to a minority interest. The other advantage to working your own projects is that you have control of the news flow, which is usually not the case in a joint venture, especially with a major.

When we looked at the market this time last year, we decided that there was still risk capital around. There were companies with cheap share prices, money in the bank and projects that, to us at least, had obvious potential to deliver really strong exploration news. We started following a gold company about a year ago called East Asia Minerals Corp. (TSX.V:EAS) at about $.40. The project, Miwah, looked fantastic, but the market was just too afraid to really jump on anything. The stock traded good volume and a lot of our subscribers accumulated it, but the share price really didn’t move until drilling started late last summer. EAS released incredible trenching results but the market reaction was “show me drill holes. I don’t want to get near anything until I see that.” Drill results did begin to arrive soon after and they have been as good or better than we hoped. Drilling is continuing to expand the main zone and the company is preparing several nearby areas for drill testing. EAS is looking more and more like a prime takeover candidate. One day we think some major will decide Miwah is a must-own asset and show up and take the whole company out.

TGR: Are you and your brother still shareholders in East Asia?

EC: Yes we are. I think I own more now than I did six months ago and the stock is now over $7. That is a big market value for the ounces EAS can put on the table now but, to me Miwah looks like it has realistic potential to host 10 million ounces of gold and possibly a lot more. Projects like that do not come around very often. So far everything has sort of gone right. I would like to see them accelerate the exploration work, but I think that will come. The company does not have a 43-101 resource but the market can see the main zone is expanding and still open and those other zones will soon be drilled, too. It’s that potential for continued rapid growth in the asset that is driving the share price.

Another example of a company like that is Riverstone Resources Inc. (TSX.V:RVS), which we have followed longer. They had a million-ounce gold resource on their marquee project in Burkina Faso, West Africa, but the market didn’t care. It took the cachet of a new discovery area to get the market excited about the stock. That reaction is the reason we’ve been focused on discovery stories lately. The project is called Karma and the discovery area, Nami, is new and several kilometers from any of the existing zones. There was a gold rush by local miners in this area on their Karma project. RVS went in and did extensive sampling of the artisanal shafts and waste dumps. The results were quite good and indicated this new zone could have large scale. The stock has moved from the low $.20 range to $1.00 and settled in the $.80 range on this news. It’s traded large volumes and management took advantage of the market attention to raise another $10 million, which puts the company in good shape financially.

TGR: Do you think a company like that may be a little over-capitalized for what they have at the moment?

EC: I think you can certainly make the argument that it’s gotten ahead of itself partially because the initial results look impressive. The company has raised another $10 million but, strictly speaking, it has the same ounces in the ground it did four months ago. At that point it was undervalued, but it’s fair to say it will take some strong drill holes to live up to the current market value. We still have the stock rated as a buy, but we have also told our readers that they should be trading enough stock out to bring their holding cost down substantially. We tell our readers constantly, in fact, that the ideal situation is one where you see potential value before the market. If the market then marks up a stock by a large amount before new results arrive, as it has in this case, you have an opportunity to sell enough to have a very low cost and be playing with house money. You might leave some money on the table, but it’s never a bad thing to take a bit of profit.

TGR: If they do pull those drill holes that you and others suspect could bring some decent results, could the market cap then double and support the shareholders?

EC: Absolutely. We don’t know what will be in the drill holes, but the shaft and dump sampling, especially the latter, were quite positive. The higher probability outcome is that the holes are good. Sampling was done over a 500 by 300 meter area and that area is open in two to three directions. In short, the zone has good scale potential. If they get good grades and widths Nami can add a large number of ounces to the resource for Karma. There is a million-ounce resource already and a large addition to that should significantly improve the overall economics. In addition to that, there were a number of high-grade results in the sampling done prior to drilling. This is a market that is reacting strongly to good drill holes and we could see a repeat of that if RVS hits higher grades. Right now it has scale potential and “newness” driving it. It could easily head higher still after a good set of drill holes but it does need those holes.

TGR: And you’re one of those people that are excited about it right now?

EC: Yes. We’ve always liked the management group and the project set, not just the Karma project alone. RVS was one of those stocks that got bombed out like everybody did last year. It was a painful process for them to raise enough money to get going again. They’ve got a fair amount of momentum now though and have the money to carry out extensive programs not just on Karma, but on a couple of other projects too if they want. They might have two or three other good projects but nobody is going to care until they are delivering news from them. We harp on this all the time. News flow is really, really important. If you’re going to play earlier-stage exploration stocks, you want to get in at the start or before the start of a drill program and not at the end. You may see in a news release something about a hot drill hole and you say “Oh wow, what’s that all about?” You read it further. One of the first things you should be scanning for in addition to the results is where they are in the drill program. If you get to the last paragraph and realize that they just reported their last hole of the program and they won’t be back for four months unless the hole is unbelievable, it’s pretty unlikely the stock is going to stay where it is. You’ll probably get it cheaper later. Where you are in the news flow is really important on the exploration side.

TGR: The companies usually have an idea of when that news is going to happen. How does the average retail or even the institutional investor know when to get in just before that news pops?

EC: Well, one way to do it is to get a subscription to a good newsletter. The other way to do it is to phone the company and ask them where they are in the drill program. What is their lab turnaround time? That varies quite a bit. There are areas where guys are getting results back in two weeks and others where it’s taking two months. It just depends on how many companies are active in an area and how many local labs there are to handle the work. The companies will usually give you a good indication of that if you phone up and ask them. Ask them when they think they can start getting news out and are they going to be releasing news every three, or 10 holes or even just once at the end of the drill phase. Most companies don’t make a secret of this information and will tell you to the best of their ability if you ask. If the market’s good and it’s being good for some of these exploration stories, you start seeing a fairly significant amount of anticipatory buying as the expected date of an important news release approaches. That’s probably mainly coming from people that have contacted the company and asked the questions.

TGR: Are you looking at platinum or palladium at all right now?

EC: We have followed platinum and palladium explorers in the past, and currently have two producers on the list. I’m reviewing a couple but there are not a huge number of strong platinum group elements (PGE) exploration stories around. I like the way both metals are trading and the market for both palladium and platinum are clearly tightening up. The recent introduction of platinum and palladium bullion ETFs is another positive factor, as these two ETFs drew over $500 million in a few weeks. Almost all of the significant platinum deposits are in one place, South Africa. Large companies that control most of the platinum camps in South Africa have huge resources, but most of it is in relatively narrow zones with tricky geometry; it’s not cheap to produce and capital costs tend to be high. That’s another way of saying we don’t expect a flood of it into the market. Russia is a big palladium producer but it’s impossible to tell if they have large aboveground inventories though they do not appear to at the moment at least.

One of the two producers we follow is North American Palladium Mines (TSX:PDL; NYSE.A:PAL), which is just re-starting their mine in Ontario again. They estimated production costs of $350/oz of palladium, so they should do ok with prices now above $500/. PDL entered the Hard Rock Advisory (HRA) list when it merged with a small gold developer on our list. The gold operation is now in production so they have gold revenues as well. It’s well priced and, like most producers, the time to accumulate is after a few bad days for metal prices when you can put in lower bids. The other one on the HRA list is called Eastern Platinum Ltd. (TSX:ELR;JSE:EPS) in Toronto. They have been a consolidator in the eastern limb of the Bushel Complex. They are in production now, but they do have a very large amount of stock out and two years of lower prices sapped the balance sheet. We took profits a couple of years back at $2.50 but have left it on the list. They are working in increase production this year. We expect ELR to trade in line with PGE prices. The upside of the company’s large share float is that it’s extremely liquid and easy to trade. We are on the lookout for a good platinum exploration play but they’re not very common. There are a couple in South America and a couple of earlier stage ones in the Canadian Shield but that is about all.

TGR: Thanks very much for your time, Eric.

EC: You’re very welcome. We’ve set up a special page on our website where you readers can access a set of complimentary recent issues of all three HRA publications and special pricing on some of our products if they are interested. This can be found at www.hraadvisory.com. Please visit us there and see what we do.

Eric Coffin and his brother David are the co-editors of the HRA (Hard Rock Analyst) family of publications. David is the “rocks side” of HRA, and has been active in mining exploration for over 30 years in roles spanning prospecting through feasibility studies, and now markets commentary. Responsible for the “financial analysis” side of HRA, Eric has a degree in Corporate and Investment Finance. He has extensive experience in merger and acquisitions and small company financing and promotion. For many years he tracked the financial performance and funding of all exchange listed Canadian mining companies and has helped with the formation of several successful exploration ventures.

Eric was one of the first analysts (along with David) to point out the disastrous effects of gold hedging and gold loan capital financing (1997) and to predict the start of the current secular bull market in commodities based on the movement of the U.S. dollar (2001) and the acceleration of growth in Asia and India.

David logs, literally, hundreds of thousands of miles every year, visiting exploration sites on six continents in order to bring back the real goods for HRA subscribers. Eric and David can be reached at hra@publishers-mgmt.com or through their website at www.hraadvisory.com.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Ellis Martin of The Gold Report conducted this interview. He personally and/or his family own shared of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: None.
3) Eric Coffin: I personally and/or my family own shares of the following companies mentioned in this interview: East Asia Minerals, Riverstone Resources and North American Palladium. I personally and/or my family are paid by the following companies: HRA Advisories never accepts compensation in any form from companies we choose to feature in our subscriber-only publications.

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Editor Kent Lucas explains why this underappreciated precious metal is an investment winner and is more attractive than gold.

Taipan Daily: Buy the Precious Metal That Will Outperform Gold
Kent Lucas, Editor, Safe Haven Investor
http://www.taipanpublishinggroup.com/taipan-daily-032310.html

Here’s a fact about precious metals that no one is paying attention to: Platinum metal, its stocks and its ETF will outperform gold. Yes, we all know all the attention that gold is getting due to the global currency printing presses and serious concerns of inflation. But the best you can do with gold is wear it or store it. Not with platinum. Platinum has other important “industrial” uses that add to its investment appeal.

Platinum is more rare than gold, more expensive than gold, has more practical uses, is in much tighter supplies, and is only mined in a few areas around the world.

Platinum and its related metals such as palladium, iridium, rhodium, osmium and ruthenium are part of the precious metals group called platinum group metals or PGM. They have similar chemical and physical properties and are found at the same ore deposits around the globe. For simplicity, I’m focusing on platinum but the same opportunities apply to platinum’s sister metal, palladium.

Why get excited about platinum? Well, the supply and demand dynamics are both attractive.

Platinum Prices Will Continue Up. With the global recession, the price of platinum tanked by 66% to $774 an ounce from early 2008 highs of $2,250/ounce. It is still 40% off its high and the fundamentals are more compelling today than a few years ago. My price target is more than $1,900/ounce in a few (2-4) years.

Let’s look at why. On the demand side of the equation, there are at least three compelling reasons to be excited about platinum’s outlook.

· Global Vehicle Volumes Rising. The biggest use of platinum is in motor vehicles. Actually, 50% of newly mined platinum usage is for global vehicle demand. Platinum is used in catalytic converters, which is part of a vehicle’s exhaust system and is critical in reducing carbon monoxide, nitrous oxide and hydrocarbons in the atmosphere. The platinum in the catalytic converter absorbs and converts these deadly emissions into harmless ones.

Every traditional internal combustion engine has a catalytic converter and new vehicles being manufactured have even tougher emission regulations, requiring more platinum content.

Vehicle demand tanked during this recent recession and platinum prices followed suit. Now we’re witnessing a turnaround in global vehicle sales.

And China, which recently beat the U.S. to be the largest car market, is growing rapidly. Tax incentives, credits and new financing methods all support fast Chinese vehicle demand. According to CMS Insight, an automotive consultancy, total global light vehicle sales will jump by 30% over the next two years and grow much more than that in China. Even better, China’s commercial (e.g. truck) demand grew by 45% last year and should continue at that level.

Overall increased global concern about the environment and emissions means increased penetration of platinum as more manufacturers and refineries adopt their products and technologies. This is particularly true in emerging markets such as China where pollution and smog is a serious problem.

· Jewels and Gems. Platinum is commonly used in jewelry given its rarity, durability and polish – to name a few appealing attributes. About 20% of platinum’s end use is in jewelry.

The cultural importance of jewelry cannot be underestimated with regards to China and India. As millions of Chinese and Indians move into the middle class, their desire and ability to own jewelry increases substantially.

One hundred million young Chinese and Indian women love their jewelry. My last trip to Asia included a stop in the Chinese island of Macau, the Las Vegas of the East. I couldn’t believe all of the jewelry stores near the casinos. If someone hit the jackpot, they were very likely going to take some of their earnings and buy jewelry.

China and India represent about 8-9% of the global gem and jewelry sales, or roughly $5 billion – and have the fastest growth rates. The total market should grow at over 5% for the next few years and will be a $250 billion market by 2015 compared to $146 billion in 2005.

· Platinum Group Metals ETF Demand. This past January, two exchange-traded funds (ETF) were launched, one for platinum bullion and one for palladium bullion. Since these ETFs are backed by the actual bullion, as investors buy the ETFs fund managers have to make more physical purchases. It is almost like a self-fulfilling or self-promotional process. The more investors buy into the ETF, the more the ETF has to buy physical bullion, thus providing some distinct price support.

Actually, given the limited supply of platinum, the exchange-traded fund has affected supply and demand characteristics by taking increasing amounts of the metal off the market.

The Wall Street Journal states that there are only 2.2 million ounces of open contracts of platinum (compared to 47 million in gold). And already close to 15% of platinum bullion surplus has been picked up by the ETF. Even better, another precious metal ETF is expected later this year – increasing exposure to investors and putting more upward pressure on the platinum prices.

As if the demand part of the equation weren’t compelling enough to make you want platinum exposure, let me talk about some of the supply issues.

· Russian Stockpile Depleted. South Africa (Bushveld Complex) and Russia represent over 90% of all production supplies as there are very few ore deposits around the world. Most are in South Africa, then in Siberia. There are also mines in Montana (Stillwater and East Boulder mines) and in Ontario, Canada.

And Russia (25% of total supplies) has the only surplus supply. As a strategic and national security move years ago, Russia accumulated excess platinum surplus.

These Russian stockpiles had created a mild supply overhang for platinum. The Russian government had been slowly unwinding and reducing this supply surplus. The key point is that industry experts believe Russia is running out of its surplus. If ever confirmed that would be quite a bullish indicator. As opposed to gold, the total amount of platinum ever mined could fit into your living room – there is no Fort Knox.

· Production Issues. There have also been increased production disruptions, health and safety issues, strikes and other operational problems in South Africa platinum mines. These problems are worth keeping an eye on given the tight supplies available.

A few weeks ago, platinum producer Platinum Australia had to shut down all operations at its mine in Smokey Hills, South Africa. There have also been other disruptions such as worker strikes at other South African mines. This ongoing risk provides some upward price action.

Buy the ETF

What’s the best way to invest in platinum? You should want direct exposure to platinum’s bullion price and the favorable global trends.

You could own the U.S. and Canadian platinum companies such as Stillwater Mining (SWC:NYSE) or North American Platinum (PAL:NYSE). But you wouldn’t be getting the full global benefits of global platinum demand, since a lot of production is regionally designated – i.e. to North American car manufacturers. There would be little direct benefit from the faster-growing demand from China.

Other miners are diversified and are mining for other metals besides platinum. Also, I’m leery of the liquidity and volume of the South African companies such as Anooraq Resources (ANO:AMEX), which is trading under $2/share. And I worry about the direct operational risk of South African companies.

So, the best way to invest in platinum, in my opinion, is to actually buy the bullion ETF. ETFS Physical Platinum Shares ETF (PPLT:NYSE), which actually started trading in January, is the best way. It’s only up mildly since then. Also consider the sister commodity ETF for palladium –ETFS Physical Palladium Shares (PALL:NYSE).

With PPLT you can take advantage of the long-term global favorable outlook for the precious metal that should shine for the next several years. Not only to take advantage of very favorable global supply and demand fundamentals, but also as a solid hedge against future inflationary risks and fiscal uncertainty – just as gold does.

Today (Wednesday), Copper is lower by about less than 1% in the overseas session. The market opened Asian trading sharply lower and has since recovered gradually.

News of the earthquake in Chile boosted the market on both Monday and Tuesday. Chile is the world’s leading copper producer. The reports proclaim that most mines are resuming operations and that activity at the largest ports is back to normal.

Ironically, Copper’s strength is being driven by other unidentified factors. We say unidentified because we aren’t sure and neither are many of the pundits. Inventories at the London Metal Exchange are at a five-year high, China has restocked while now tightening its monetary policy and the COT structure remains negative, as non-commercial traders are modestly long. Furthermore, one must note the long-term resistance in the 300-400 range.

For the time being, macroeconomic factors seem to be overriding copper-specific fundamentals. Widespread currency weakness (as a result of sovereign debt troubles) is enhancing the appeal of commodities as a store of value. Note that while Copper has yet to surpass the early January high in US$ terms, it already has against most foreign currencies, including the British Pound and the Euro. The US Dollar index is now struggling at resistance at 81 and that removes an impediment to all commodities. Also, perhaps the worries about a dramatic slowdown in China are overblown?

The trend is your friend and for the May 2010 contract it remains intact. The weekly candles illustrate how 340 is strong resistance. The May contract has yet close above 340 on a weekly basis. A close above 340 should take the market to 355, the early January high.

Platinum

As we go to press, Platinum is higher by $3 to $1579. It appears to be following the precious metals.

In January we saw the debut of the first Platinum ETF. It comes from ETF Securities Ltd and is backed by Platinum. Investment demand only comprises 8-9% of total Platinum demand. The lion’s share comes from automobile demand (70%). Investment demand in Gold has surged in the last five years. If the bull market in precious metals continues, Platinum is sure to benefit by way of greater investment demand. Investment demand for Platinum may be in its infancy, though the introduction of the ETF is a turning point.

As we noted, macroeconomic factors seem to be driving the commodities markets.  Sovereign debt troubles are causing widespread currency weakness, which in turn, is enhancing the appeal of commodities as a store of value. Yesterday Platinum closed at a new recovery high in Euro terms. A few days prior it closed at a new recovery high against the British Pound. Hence, it is always important to judge markets in real terms. How is one performing against the other markets? It helps to expand our analysis. Platinum has held up very well despite a strong rally in the US Dollar.

Technically, a move to 1600 is very likely. The market has tried and failed thrice to surpass 1600 on a weekly basis. A close above 1600 should take the market to its January high near 1650.

Gold

Gold finally took out resistance at $1120. It is solidly higher today, having held above $1130 in both Asian and European trading. Yesterday the buck was higher but that didn’t deter Gold. Today, the greenback is marginally in the red. The next target for Gold is $1150, which looks very likely. A close above $1170 and we can expect $1200-$1220.

Silver

Silver has more resistance to deal with. Go back several months and one can see that there figures to be a lot of supply around $17.00. If Silver can sustain its strength and follow Gold, then we’d look for $17.50- $17.75 to be the next stopping point.

Jordan Roy-Byrne, CMT

Platinum

Platinum continues to act more as a precious metal than as a base metal. Precious metals have strengthened and it certainly helps that Copper is in the black. The big news of the day was an unexpected “no-change” in interest rates from the Reserve Bank of Australia, after they had previously hiked rates three times. These initial rate hikes were the first global signs of tight policy. This is positive for the metals and it comes at an opportune time; amid strengthening technicals.

Yesterday the April contract closed above $1525, thus validating the bottoming formation we pointed out in the last two updates. The market’s initial thrust went past $1550 before running into some supply. We’ve noted the importance of the $1550 level. A strong daily close above $1550 would give the market a chance to test the recent high. In fact, in looking at a daily chart, one has to believe that a close above $1560 would position the market for a retest of $1647. As we go to press, Platinum has broken above $1,550.

Copper

Copper futures are suddenly in the green as we begin the US session. The March contract continued its recovery yesterday after rebounding from support at $3.00. Predictably the rally continued until meeting ample supply at $3.10-$3.11. Prior to yesterday’s bottom, Copper shed 10% in just four sessions. Negative technicals along with a bevy of fundamental negatives (rising inventories, Chinese tightening, firm US$) have weighed on the market.

It is also important to note the most recent Commitment of Traders report. The data shows a surge in speculative long positions since December. Meanwhile, the commercial hedgers net short position is nearly at a five-year high. As we noted last week, market weakness will beget more weakness when there is a substantial speculative long position.

Turning to the charts, I see good resistance at $3.10 and $3.20. As long as $3.00 holds, the reprieve will continue. As we go to press, Copper has inched up to nearly $3.12. The rally in the metals is building despite a lack of weakness in the US$. Copper has a good chance for more gains. In regards to news, keep an eye on pending home sales data, which will be reported today.

Gold

Gold is higher by $9 and that is impressive follow through after yesterday’s ~$20 advance. The market got a boost when the Reserve Bank of Australia decided not to raise rates. The RBA had previously hiked rates the last three meetings. Their statement mentioned though not in exact words, Chinese tightening and escalating concerns over sovereign debts. Though this is likely a pause on the RBA’s part, it still buoyed a market (Gold) that yesterday emerged from bottom.

We should also note that the World Gold Council said that suggestions of a gold price bubble do not take into account ‘strong fundamentals.’ We couldn’t agree more. Reserve diversification as well as supply constraints were noted as several of the key fundamentals.

Turning to the chart, the market consolidated its gains in Asia and then moved higher in the European session. The market has emerged from a bullish consolidation and should continue unabated until resistance at $1120. We should note that the bulk of this ~$30 gain has come without any US$ weakness. The US$ is now in the red and appears to be only following Gold’s lead. In recent days we noted that Gold was holding up well in relative terms.

Silver

Silver continues to follow Gold. Now that Gold has turned, Silver has followed and is outperforming. The consolidation for much of today’s overseas session looks to be a bull flag, which projects a move to $17.20. The market should see resistance in the $17.00-$17.50 zone.

Jordan Roy-Byrne, CMT

Platinum

Platinum futures are up nearly 2% as we begin the US session. With Copper down slightly, and Gold and Silver higher, Platinum appears to be acting as a precious metal today. The US$ weakened following President Obama’s state of the union address. Meanwhile, today two Platinum producers (Lonmin and Aquarius) announced lower quarterly output.

Such factors along with an extreme oversold condition (in terms of hours rather than days) can explain the near 2% rise in trading overseas. We show a chart that doesn’t include today’s action. What we see is strong distribution in four of the past five sessions. In other words the market has had trouble holding gains and has closed closer to the lows than the highs. While such selling is bearish in the larger picture, it has left the market very oversold and due for a bounce. The first area of resistance is ~$1530 followed by $1550. Going forward, weakness will resume upon a close below $1500.

Copper

As we pen this, Copper is hovering around unchanged. Most contracts are lower by a penny or two. Today in China, the Chinese banking regulator told banks to further scrutinize property loans. As we’ve noted recently, we’ve gone from fears of tightening to actual tightening in China. Very short-term rates are rising and banks have been ordered to raise their reserve ratios.

Turning to the chart, yesterday we wrote that a weekly close below $3.30 would send the market to $3.10. As soon as the market fell below $3.30 it went as low as $3.17.  As you can see, the market is hanging on a trendline. On the low end watch $3.10 as a support level. During the past 24 hours $3.17-$3.18 has been support. If the market can’t hold $3.17 today then a move to $3.10 is very likely.

Gold

Gold for February delivery is up $6 to $1090/oz. The other futures contracts show a $5-$8/oz gain. Interestingly, the US$ is basically flat. It was higher in the early Asia trade but lost gains and that continued until reversing higher in Europe. As we begin US trade, the greenback (index) is in the black by nearly a dime. The buck remains buoyant even after a failed test at 79.00, which will be key resistance.

There wasn’t anything new from neither President Obama nor the Federal Reserve. If the economy weakens, more stimulus is coming and that is good for the yellow metal. The question remains if the mortgage market can stabilize in the absence of Fed support. If unemployment continues to rise, it is highly doubtful. In other news George Soros in Davos said that Gold was the ultimate bubble. Traders are not paying attention as Gold is holding up well amid a flat to partially higher greenback.

For February Gold, $1080 remains important support while $1090-$1092 is the current resistance level. A close below $1080 and the market is likely to fall to $1030-$1050. A daily close above $1100 would likely confirm an important bottom. As you can see from our chart, the market is either going to hold support at $1075-$1080 or will plunge towards $1025-$1030, likely forming a bottom there. The bottom row of the chart shows Gold already bottoming against the commodity sector. In real terms, Gold is making a bottom here. Eventually that is bullish for Gold, but not necessarily for the next few days.

Silver

After dramatically underperforming Gold in the last few sessions, Silver is rebounding in both real and nominal terms. It is not difficult to see why as the market is very oversold in the short-term and very close to strong support at $16.00. When a market nears good support in an already oversold state, it is likely to rebound. As you can see from our chart, Silver has good support at $16.00 and above. Yesterday’s low was actually higher than Wednesday’s low. So the market is digging in. Watch $16.60-$16.70 as a close above this resistance will confirm that a bottom is in place. We are referring to the February contract.

Jordan Roy-Byrne, CMT

Platinum

The spot market is currently at $1517/lb, right near the levels seen as we penned yesterday’s commentary. On most contracts, Platinum is down about 1%. Yesterday in US trade, the spot market continued its losses, only to reverse nicely after testing support at $1500. Platinum was soft in the Asian session, dipping towards $1500 only to reverse higher again. This could be a short-term double bottom. The market has overhead resistance in the $1530-$1540 area. Looking at the daily chart, the market is in a short-term consolidation or correction until it can close above $1550.

Today all eyes or ears will be on The Fed as they wrap-up their meeting. It is unlikely that we hear any breaking news, as the Fed likes to telegraph things in advance. To us, the trade (before and after the meeting) will be to the upside as few expect any signs or hints of tighter policy in the future. Unemployment continues to rise and that prevents the Fed from raising rates. The tighter policy (the end to the purchases of mortgage-backed securities) is mostly priced into the market.

Copper

Copper is currently down 1.6%-1.67% on most contracts. The spot market is currently at $3.28/lb as it lost nearly 2% in Asian trade. Concerns over tighter monetary policy that could impact economic demand, caused the fall. As we noted yesterday, such concerns are well founded. The market is responding to events in China, rather than the US market, as China’s demand plays a larger role.

Turning to the charts we see support at $3.30. A weekly close below $3.30 could send the market down to support at $3.10. Over the next day or two, look for $3.34 to be resistance. A move beyond that would target $3.40.

Today all eyes and ears will be on the Fed decision. Pundits will spend a lot of time obsessively analyzing every sentence and every word. With high unemployment, a fledgling recovery and the recent downturn in markets, we highly doubt anything negative comes out of the Fed. That goes for today and in the foreseeable future.

Gold

On the spot contract, Gold is down fractionally as its pared losses in the last several hours. In the same time frame, the US Dollar index about 0.35 points. For most of the Asian session Gold weakened as the US Dollar strengthened. In the very near term, Gold continues to take its cues from the US Dollar.

The US Dollar Index remains buoyant but is struggling with overhead resistance at 79.00. However, the market’s buoyancy does suggest that it eventually pushes above 79.00. There is also resistance at 80.00 and 81.00. While Gold is clearly in a corrective state, it may be mitigated by the greenback’s struggles with overhead resistance.

It is hard to envision something coming from the Fed meeting that would be bearish for Gold. The Fed will not introduce tight policy until unemployment declines or the market forces its hand. Our longer-term view is that more monetization will be needed and this could eventually force the Fed to begin hiking rates.

Technically speaking, we suggest keeping an eye on the recent lows near $1080. The market is trying to hold this bottom and in doing so, would hold above the December bottom. A daily close above $1100 would give us confidence that this bottom would hold over the next few weeks.

Silver

Once again we note that Silver is underperforming Gold. We give ourselves a little shoulder tap for this repeated observation. On the spot contract Silver is in the red by 1.5% compared to about 0.5% for Gold. Yesterday Silver declined through and closed below the critical $17.00 level. The next crucial support is near $16.00.

Interestingly, we are seeing a little bit of a divergence between the metals as Silver has broken its December low while Gold continues to hold above it. As we finish our thoughts we see that the metals have taken a dive in the last 15 minutes or so. Watch Gold at $1080 (today and tomorrow). If Gold can continue to hold above $1080 while Silver makes new lows, it would be a bullish divergence. In that case Silver would reverse to the upside. Once again, Silver will take its cues from Gold.