Bull Market In The Making For Precious Metals?
Today’s Spotlight Market
While Gold and Crude Oil are currently on divergent price paths, I wanted to take a look at how the current Gold to Oil ratio compares to historic trends. During the post WWII era the ratio of how many barrels of Oil one ounce of Gold could buy tended to range between 10 to 25 barrels of Oil per ounce of Gold, with outliers below 10 and above 30 occurring only rarely. As of this writing and using the April expiration futures, the current ratio has Gold buying 37.42 barrels of Crude, which is at an extreme level going back 70 years. While it is rarely wise to try to pick tops or bottoms in strongly trending markets, one has to think that historical norms will eventually prevail but attempting to time such an event is an extremely difficult endeavor.
Fundamentals
While it appears that most market precipitants have become laser focused on the plight of energy prices as the poster child for the slump in commodity prices, one market sector?precious metals, appears to have sent the bear back into hibernation as metal bulls appear poised and ready to stampede. Gold futures are performing the best with the lead month April futures now trading at its highest level since June of last year on so called ?safe haven? buying, as well as a weakening U.S. Dollar (down about 2% for far in 2016) as traders have all be given-up on a Federal reserve interest rate hike at the March federal Open Market Committee Meeting. While one could argue that the Gold rally is an anomaly given its role as a ?flight to safety? investment in times of economic uncertainty, we are also seeing the more ?industrial? of the precious metals such as Silver and Platinum post multi-month highs. Asset flows have been increasing for the major Gold ETF?s, with some spillover buying seen in Silver as well. Large speculators are starting to add to existing long positions in both Gold and Silver according to the most recent Commitment of Traders report. During the reporting period ending February 2, non-commercial traders added just over 15,000 new net-long positions to raise the overall net-long position to over 83,800 contracts. For silver, the additions were more moderate with nearly 1,400 new net-long positions added to bring the total net-long position to just over 37,400 contracts. Both these net-long positions are well off of extreme levels seen in the past which could signal additional buying pressure emerging should upcoming resistance levels fail to hold and trend following funds increase their net-long holding at new multi-month highs. ?
Technical Notes? – View Today’s Chart
Looking at the weekly continuation chart for Gold futures we notice that prices have staged what appears to be a neat 50% retracement of the historic bull market starting at the major low back in 1999 to the historic high of 2011. Prices have once again moved above the 20-week moving average (MA) and are now testing the 100-week MA which is currently near the 1200.00 price level. The 14-week RSI has managed to avoid falling into oversold territory since mid-2013 and has now moved to a more neutral to bullish reading of 58.40. There is some significant chart resistance in the 1230.00 to 1250.00 price area, but that still leave ample room for further upside pressure until this level is tested. Downside support is seen at the December 2015 lows near the 1050.00 price level.????
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