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What is it going to take to shift investor sentiment to bearish?

March 27, 2015

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Here is the chart showing the 7 year cycle Gary mentions in the interview.

chart of the day

Discussion
31 Comments
    CFS
    Mar 27, 2015 27:46 AM

    I don’t understand the divergence of behavior between Au and Pd.

      Mar 27, 2015 27:21 PM

      What about platinum to palladium?
      http://stockcharts.com/freecharts/gallery.html?s=$plat:$pall
      There is a fair divergence even between two ‘similar’ metals.

        Mar 27, 2015 27:36 PM

        Yes, I completely agree Silverbug Dave and made that comment below to start off my Palladium versus Gold blurb. It has been the case that so many days Gold/Silver/Platinum were going one direction while Palladium was heading the opposite direction.

        I think it is because Platinum trades just slightly more like PM than Palladium does, due to the Jewelry and coinage marketplace. Palladium gets boosts or pressure from the PM complex, but trades more like a base metal.

        Between the two metals on a supply side I go into great detail below about the changes in the overseas auto markets and supply fundamentals.

        Good chart Silverbug Dave!!

    Mar 27, 2015 27:09 AM

    I’m glad you brought that up CFS ,as I have been wondering the same thing.
    I don’t understand the divergence but I did buy physical palladium recently.
    My reasoning for palladium was that there is something to the 1989 discovery by Martin Fleisman and Stanley Pons concerning cold fusion.
    Discredited by the American Academics and scientists Fleisman and Pons ended up in France with backing by the Japanese.
    Along with palladiums value as a precious metal,it’s industrial value could possibly increase in the future.

      Mar 27, 2015 27:48 AM

      The only thing about palladium and platinum that is precious is their price. They are really base metals and they trade like it. Like copper, both do best when the economy is doing best. Also like copper, both have a relatively tiny “stock to flow” or above ground supply relative to production when compared to gold or even silver.

      Gold was the only metal that finished 2008 higher (which means it beat the dollar). It went up more than 5.5% while palladium fell 50%. Platinum fell about 39% and copper lost almost 54% (from Jan. 1, not their peaks). Thanks to silver’s own monetary attributes, it held up much better than the pure base metals by losing “only” 24%. In addition, only gold and silver enjoyed increased liquidity and a narrowing of bid-ask spreads during the ’08 crisis —a change which remains to this day. Conversely, I recall platinum’s bid-ask spread widening by ten times at the same time its price fell by two-thirds; in other words, the spread really widened by 30 times.

      It is interesting that platinum was cheaper than gold in 2008 only briefly while it has been the norm lately. To me, this should not be a surprise considering the enormity of the problems the system and the economy faces.

        Mar 27, 2015 27:53 PM

        Matthew I tend to agree with your remarks above, but feel that even Palladium and Platinum have diverged lately. CFS had a question about the divergence between Gold and Palladium, and as you know we recently explored the charts for the last 5 years in Silver versus Palladium and found that with Silver an investor putting $10,000 in it lost 5% and Palladium on that same $10,000 had an 80% return.

        Palladium is definitely marching to the beat of it’s own drummer because it has unique supply demand fundamentals. Most of the Palladium is mined as a byproduct of the Platinum industry in South Africa (which has been a disaster the last few years with riots, unions, shutdowns…etc). The second biggest supply of Palladium comes from Russia as a by-product to their Nickel mining.

        The marketplace is very small, and while the Auto Catalytic Converter dominates the supply. This trend is only growing as China & Asia add more gasoline cars, and Europe continues to covert more and more from diesel to gas automotives. There are also medical/dental/jewelry/electronic applications for Palladium like Silver & Platinum.

        The only miners really focuses on palladium in the western hemisphere are Stillwater and North American Palladium. Stillwater also is a huge scrap recycler of Palladium. There are projects like Wellgreen Platinum, Platinum Group Metals, Polymet, and Duluth (recently bought out and merged with Antofagasta) that have very large Palladium reserves in addition to Platinum, Rhodium, Gold, Silver.

        Many times the PGMs are found along side Gold and Silver, and they are actually much more rare and precious. However, I agree with you Matthew that they don’t trade the same as Gold/Silver in a crisis or fear of a financial disaster, but they do somewhat track the PMs, but much more often the base metals.

        While I am a huge fan of Palladium and the miners mentioned above, I am very concerned at what happened to Palladium prices today. Palladium broke a key support area today when it plunged below $751. For the last few months it had little peaks that started making higher highs and then the dips were higher lows. Up until today it had not breached the $751 low from Oct 17th…..closing at $736.

        Now there may be a bounce in Palladium on Monday due to the severe decline today, but it would just be a snap-back. This was major chart damage today and changes the thesis on Palladium from bullish to bearish on the short to mid term.

        Since I expect PMs to be under some pressure next week and the dollar to rally a bit, then I’m on the sidelines until then. I’m ready to make a quick decision though if something changes, but Palladium looks like it is teetering on the fence.

        Mar 27, 2015 27:12 PM

        A correction to the statements above. $10,000 in silver was only down .70% (not 5%) and silver was up 88% (as of the 13th when we were exploring this topic).

        On March 13, 2015 at 1:05 pm,
        Matthew says:

        Shad, just in case you missed it under the other thread, here’s this:

        http://stockcharts.com/h-sc/ui?s=$PALL&p=W&st=2010-02-13&en=today&id=p70369419070

        You can see on the left of the chart that silver went up over 200% but is now down .70% (since Feb.2010) and that palladium is up 88% right now.

    Mar 27, 2015 27:11 AM

    CFS:
    I recently had a meeting with a very successful 50 something Chinese doctor.
    I took this as my opportunity to get the real low down on China.
    I asked him what he thought was the single most contributor to the decline in base metals prices. His answer was Goldman Sachs.

    Mar 27, 2015 27:14 AM

    Gary,
    This is crazy talk, im disappoint cory didnt challenge you, there is no historical pattern of 7 year low

      Mar 27, 2015 27:07 PM

      It’s right there on the chart.

    Mar 27, 2015 27:09 AM

    Mathew :
    Any metal that a women will put on her fingers is precious. That would be my definition of precious metals.

      Mar 27, 2015 27:23 AM

      Nothing wrong with that. That’s probably why I usually talk about the monetary metals vs the base or industrial metals. Platinum and palladium trade like industrial metals not monetary metals so they are inferior to gold as portfolio insurance.

        Mar 27, 2015 27:39 AM

        My point is simply that the divergence that CFS and John K noticed does make sense. From an investors perspective, female or not, platinum and palladium are very different than gold.

          Mar 27, 2015 27:55 PM

          I do agree with you Matthew. The PGMs are actually a good diversified asset to have in a basket of commodities because they sometimes track with PMs (Gold/Silver) and sometime base metals like Copper. If you look at how palladium has moved in correlation to Gold and Silver the last few years like we did it is really a mixed bag.

            Mar 27, 2015 27:10 PM

            Matthew here was that chart you pulled on Friday the 13th for Silver versus Palladium:

            On March 13, 2015 at 1:05 pm,
            Matthew says:
            Shad, just in case you missed it under the other thread, here’s this:
            http://stockcharts.com/h-sc/ui?s=$PALL&p=W&st=2010-02-13&en=today&id=p70369419070

            You can see on the left of the chart that silver went up over 200% but is now down .70% (since Feb.2010) and that palladium is up 88% right now.

            On March 13, 2015 at 5:56 pm,
            Shad says:

            Yes thanks so much Matthew. Great work Chart Ninja!!!
            I had responded on yesterday’s Rick Ackerman thread but here was my response.

            On March 13, 2015 at 1:29 pm,
            Shad says:

            Yes, that is exactly what I was hoping our Chart guru could find. I saw where they used to be more correlated in 2011-2012 and then actually moved in different directions, but then got synched up from Mar-Oct of last year, and now are moving inversely. I guess what I learned is that there is no real correlation between Silver & Palladium, and that is why it is a good idea to have both in your portfolio.

            Again, I think Silver has a much better chance at a larger percentage increase, and Palladium could fall more. However, the fundamentals for Palladium have been strong the last few year and I expect that to continue into 2017.

            Thanks Matt, I wish I was as fast as you at creating charts. You da man!

            On March 13, 2015 at 9:26 am,
            Shad says:

            The jury is still out for me on Palladium, and I follow it every day and have for years. Personally, I have made more money trading in and out of Palladium & Platinum stocks over the last few years than Gold or Silver.

            2014 was a wild year up until August, but luckily I missed most of the giant pull back in late Aug-Sept. I got back in and rode it back up through year end.

            In 2015, when it took a nosedive down to close at 754 (intra-day 747) in January it got my attention. I think we actually were discussing it on the blog back in Jan and I stated that since it bounced off the support levels targeted, that I felt it would rebound hard and get back over 800. That is exactly what it did.

            Palladium has a pattern of higher lows and higher highs, which is still bullish in my opinion. The low of 754 on Jan 19th was higher than the previous two lows of 751 on Oct 17th, and 753 on Oct 3rd. The recent high of 826 on March 2-3rd, was higher than the odd triple top Palladium put in at 812 on Dec 12th, 815 on Dec 26th, and 814 on Jan 13.

            It has been a wild ride, but with higher highs and higher lows, and much of Europe starting to convert from diesel to gas, then Palladium is gaining in importance over platinum. Also China is using mostly gas powered cars putting more demand into the Palladium space.

            As far as it’s relationship to Silver – I don’t know. I usually group silver in with Gold, and keep Platinum, Palladium, and Rhodium as the PGM group doing their own thing. The PGM group is really quirky, because sometimes it travels with Gold and Silver, sometimes with the base metals, and sometimes it is non-correlated to any of the metals. Auto sales, supply deficits, Russia, and South Africa can be big movers in the space, which is unlike Gold or Silver.

      Mar 27, 2015 27:25 AM

      John….seems that I have heard that before.

    Mar 27, 2015 27:11 AM

    correction-woman not women.

      Mar 27, 2015 27:38 PM

      Good catch John K – If you starting putting multiple rings on multiple women, you better have big reserves of Gold, Platinum, energy, and patience : – )

    Mar 27, 2015 27:45 AM

    Gary,

    I like what im hearing and it’s in line with some great forecasters. The only thing i would differ somewhat from you is that I believe gold puts in the bottom first. It makes 100% sense as in 2008 gold bottomed first. Gold went into the bear first and will come out first. You did mention it will be in close proximity and I agree. 3-4 months apart in proximity is my take.

    If gold has not put in it’s final low then I would say 30%summer,70% October/novemer.. A repeat of 2008/2009 for both gold/equities bottoming.

      Mar 27, 2015 27:23 PM

      Glen, I agree. It is likely that gold will bottom first, as the dollar is doing it’s blow off top. If the Euro gets ugly for various hot potatoes, then this will over extend the dollar. However, when the Fed can’t raise interest rates again later in the year, multinationals are getting punished in exports due to the strong dollar, and the poop hits the fan on the banks and financial institutions that backed the oil patch hit the news, then I think the stocks have a major correction (20%) in Sept/Oct. I see gold bottoming in late May/June, and then starting to claw it’s way up out of the major bottom in the commodity complex.

    Mar 27, 2015 27:19 PM

    Glen,

    From what I’m following, either the bottom is in April or November. And judging with the financial events taking place, I’m pretty sure the gold wash is upon us.
    At least I hope so..

      Mar 27, 2015 27:30 PM

      Chartster,

      I can see gold also rallying here into june as I told shad awhile ago catching everyone of guard. Then the tumble into November. Everyone currently is bearish gold despite this pop and Matt seems to be one of the few who is more bullish. I can see us going up as high as 1350-1400 like avi mentioned as well. Then the final blow.

      At this point caution is advised. You have got to be a pro to trade these markets. Whipsaw and midpoint level indicators are not for me.

        Mar 27, 2015 27:33 PM

        I definitely respect your opinion Glen, but have the impression we’ll be heading into the “Sell in May go away” at the end of April and into May.

        If you remember, I did not think we’d test the Nov lows of 1130 in Feb or March, when many were calling for much lower. I thought we’d get a pop in PMs for about 2 weeks when the dollar topped (Friday the 13th). Now that has run it’s course and I expect PMs to be under pressure next week, and the dollar to rise a bit.

        It will be a whipsaw market in PMs but by late April & May we will be testing and likely go below the Nov lows in Gold at 1130. My first major support target below is the $1044.70 level from Oct 30th, 2009. After that next support is $993.20 from Feb 20th, 2009 peak. This low may take until June to finally bottom, as nobody knows when it will be.

        Once gold bottoms and the rest of the commodity complex will turning up in the summer/Fall as well, when the dollar tops. This will be conflagration of market forces and then 2-3 months later in Sept/Oct the correction to the general markets.

        I am willing to admit that this may not happen, as it is just a probability based on longer term weekly and monthly charts in the PMs/Dollar/and S&P.

        If we rally into April/May/June in PMs, and don’t correct until November, then I am going to issue 4 Starts (Silver, Gold, Palladium, and Platinum) to you my good man!!

          Mar 27, 2015 27:41 PM

          that should have said 4 Stars Glen, not 4 Starts : – )

          Regardless, As for April, it is possible we could see PMs rising a bit, after the PMs have a brief correction in the next week or two, as Gary mentioned yesterday and today. I just remember many years where the selling pressure started in late April and May and trudged into summer doldrums. This seems like the most common place due to seasonality where Gold is weak, and where it will likely test 1130 and below.

          It will be fascinating to watch the next few months, because regardless when the major lows come in Gold/Silver in the summer or November as you forecast, then that will be an awesome purchasing opportunity to build great positions. That will be a “back up the truck” moment.

    Mar 27, 2015 27:35 PM

    DARN RANGE TRADING! I am stuck on both sides of the gold trade. I need NUGT or JDST to move up about $1 to $2 so that I can take profits. They are moving up and down about 50 cents. Ugh!

      Mar 27, 2015 27:40 PM

      Jason you got balls of steel to trade those vechicle’s on the daily lol.. My wishes you come out of that trade on top.

      Mar 27, 2015 27:01 PM

      Yes………..it’s very tight right now!

      Mar 27, 2015 27:51 PM

      Been in that same position a number of times Jason….You will survive, but it is very nerve-wracking when you’re in the pressure cooker!

    Mar 27, 2015 27:02 PM

    One things for sure. These bullion banks are throwing a better slider that Randy Johnson ever had!

    Mar 27, 2015 27:43 PM

    Looking at gold in Euros the chart looks fabulous:
    http://stockcharts.com/freecharts/gallery.html?s=%24GOLD%3A%24XEU
    Gold still looks moderately lousy in US dollar terms and mediocre to OK in Pound Sterling terms, good in Japanese Yen terms and flat as a pancake in Swiss Franc terms (maybe the Swiss are pegging the Swiss Franc to gold now).
    Euro and Yen together make up 71.2% of the denominator of the US dollar index. With gold in decent 1+ year uptrends in these currencies, it would seem likely that for gold to go under $1000 US, the Euro and Yen may have to fall a long way against the US dollar at the same time, which would hint at USDX going to 120+.