Could Platinum And Palladium Outperform Gold In 2015? - by Kira Brecht

Could Platinum And Palladium Outperform Gold In 2015?

There is a well-chronicled seasonal spreading strategy published by Moore Research Center Inc. (MRCI) that reveals how platinum futures historically have outpaced gold futures during the October through April period over the last 15 years.
That doesn't mean gold is set for a crash, but it does underscore a seasonal tendency for platinum to outperform gold during that time period.
Platinum is both a precious and an industrial metal. Industrial applications include wide use in automotive catalytic converters. Platinum is especially efficient in diesel engines. Diesel           is projected to overtake gasoline as the number one transportation fuel by 2010, according to research by ExxonMobil, which ultimately should support underlying demand for platinum in the industrial sector.
According to a BofA Merrill Lynch Global Research report, the firm forecasts gold prices at $1,225 in 2015, with platinum at $1,438 and palladium at $925. Those represent healthy gains for both platinum and palladium from current levels—see the charts below.
All the metals are projected to continue to rise in 2016, with a forecast at $1,300 in gold, $1,600 in platinum and $1,000 in palladium. Farther out in 2021—the BofA Merrill Lynch Global Research report forecasts continued gains with gold at $1,508, platinum at $2,001 and palladium at $1,053.
What are the key levels to watch now?
January platinum futures have carved out a type of "triple bottom" on the daily chart. See Figure 1 below. Strong support has formed in the $1,186 to $1,175 region. The key technical chart points are seen at Point A and Point B, the December swing high at $1,256 and the October 9 high at $1,294.80. It would take a strong rally through the $1,295 region to confirm a major bottom on the daily chart and open up the door to a strong rally move in the months ahead.

Shifting over to palladium, BofA Merrill Lynch research highlights palladium as a potential winner in 2015. "Palladium has been in deficit for years and as such has the strongest fundamentals in the metals complex. This gives a firm foundation for further price gains going forward," according to a BofA Merrill Lynch Global research note.
The palladium chart looks healthy and strong. Take a look at Figure 2 below, a monthly continuation chart of palladium futures.

Drilling down to a daily chart of palladium, the 2015 price target identified in the BofA Merrill Lynch Global Research report leaves scope for a big rally ahead.

Bottom line? Gold may face some headwinds in 2015 amid U.S. dollar strength and tighter monetary policy from the U.S. Federal Reserve, but longer-term targets still estimate higher prices for gold in the years ahead, along with strength in both platinum and palladium.

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Dec 28 Could Russia back its currency with gold?

Could Russia back its currency with gold?

Russia's government could still be pushed into using its gold reserves to bolster the falling ruble, currency experts have forecast.

Rumors last week that Russia was on the verge of selling its gold reserves were quashed with the news on Friday that it has continued to add to its holdings. However, John Butler, chief investment officer at Atom Capital, and Alasdair MacLeod, the head of research at online bullion exchange GoldMoney Foundation, believe that Russian President Vladimir Putin could bring the country onto some sort of "gold standard" to try to shore up its economy.

"It was (and still is) in Russia's power to adopt a gold standard," MacLeod told CNBC via email.

"There is no doubt that Russia and China, plus the other Eurasian states in their sphere of influence are all accumulating gold and the indications are they see it as central to replacing the U.S. dollar for cross border trade."

Whether Russia would actually decide to do it was another matter, said MacLeod, and expected the country's central bank to the lack the courage to act. However, he said that if Putin is "provoked sufficiently" he may judge it to be in Russia's best interests and could overpower any reluctant officials at the bank.
Read MoreShould America worry about a China-Russia axis?
"It is already in Russia's interest to cast itself off from inflating western currencies and to base their economy on sound money, aka gold," he said.

GP Kidd | Cultura | Getty Images

Countries that are indebted and provide substantial welfare for its citizens would be most threatened by any return to gold convertibility, according to MacLeod, who said Russia could therefore be building a "weapon of mass financial destruction."

The Nixon administration has been credited with originally breaking the link between gold and the dollar in the early 1970s amid surging inflation, rising costs from the Vietnam War, and an oil crisis.

Before that, fixed amounts of gold were directly convertible to the U.S. dollar and vice versa. That meant money supply theoretically was limited by the amount of gold backing it, and exchange rates were based on the difference in price for an ounce of gold between the dollar and a foreign currency.
Russia has been aggressively buying the commodity in recent years and has formed closer currency ties with neighboring China in the process. Russia's gold holdings rose to 38.2 million ounces as of December 1, according to a statement by the central bank on Friday. This was a rise from a figure of 37.6 million from the month before, and allayed fears that it had sold the precious metal for dollars so it could further rebalance the ruble. The Russian currency had a torrid week, plunging by more than 11 percent last Tuesday — its steepest intraday fall since 1998.

Jim Rickards, the senior managing director at Tangent Capital and who has written extensively on the subject, told CNBC via email that Russia will move to a gold-backed currency but believes that such a move could be a long way off.

Read More What Russia-China relations mean for the dollar

<p>Putin's speech seemed 'relatively calm'</p> <p>Commenting on the Putin's recent speech, Simon Quijano-Evans, head of EM research at Commerzbank, says the press conference started off "relatively calm" and that Putin appears to be trying to act on negotiating terms.</p>

"Russia will continue to acquire gold, but will need hard currency reserves also to bridge the gap between today's position and any future intentions," he said.

One major drawback for Russia is that the ruble is already heavily linked to the price of oil and a gold-backed currency would link it to a second commodity, according to Phoenix Kalen, the director of emerging markets strategy at Societe Generale.

Thus, this would hinder usage of the "freely" floating currency as a shock-absorbing mechanism for its economy, she said.

I think it's highly unlikely that Russia would move toward a gold-backed currency," she told CNBC via email.

"At this point in time, it may make more sense for Russia to accumulate gold reserves, as it would help the country to diversify away from U.S. assets, stay ahead of the U.S. monetary policy tightening cycle which may adversely impact U.S. Treasury holdings, and benefit from the inflation protection provided by gold assets."

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Dec 28 L@@K The Industry Catalogue of Gold Bars Worldwide

The Industry Catalogue of ...Gold Bars Worldwide  

Barb Moriarty

Years ago I purchased the most wonderful gold book I have ever seen:-

The Industry Catalogue of Gold Bars Worldwide, published by Grendon International Research PTY Ltd in 1998.

It was compiled by Nigel Desebrock and it is 344 pages of the most gorgeous photographs of the range of standard, innovative and unusual gold bars that were available, worldwide, in the 1990s. And is packed with details of the world's accredited refiners and bar manufacturers.

At AUD 279 (Ozzy dollars) it didn't come 'cheap,' but over the years, we have bought several copies of this amazing Catalogue for special people.

It is now available, until 31st December 2014 for AUD 175 (including courier delivery from Australia).

Order here: http://grendon.com.au/orderform.htm

More information and table of contents.

For those of you who do not feel comfortable ordering from the www, you can rest assured that your privacy and personal details will be respected 100 percent.

A human being will handle your order, and Brigida is lovely.

Please note that Brigida is located in Perth where the time is 13 hours ahead of Eastern Standard Time.

Barb Moriarty

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Dec 28 Miners Extremely Oversold as Tax Loss Selling Ends

Miners Extremely Oversold as Tax Loss Selling Ends

Another December and gold stocks have reached another extreme oversold condition. This was the case precisely 365 days ago and the precious metals complex, led by the miners rebounded strongly for nearly three months. A year later and the gold stocks are even more oversold. They’ve been in a bear market for more than three and a half years and in terms of price are very close to matching the worst bear market of all 1996-2000. Only time will tell if this is truly the end of the bear market but in any case miners have a shot to start 2015 off positively.
The following sentiment indicator was developed by sentimentrader.com. For various ETFs it considers options activity, fund flows, the discount to NAV and future volatility expectations. Like any indicator, it is only a single indicator and is best used in conjunction with other indicators. Interestingly, the Optix for GDX touched 27% two days ago. That is the lowest since GDX began trading in 2006.




Breadth indicators also indicate an extreme oversold condition in the miners. The bullish percentage index (% of stocks on a P&F buy signal) for the GDM index (forerunner to GDX) is currently at only 3% but was at 0% at last weeks low. It has only ticked 0% a handful of times in the past two years. Second, the percentage of stocks in the HUI trading above their 200-day moving average is currently 6% but was 0% at last weeks low. The last time both indicators were at 0% together (as they were last week) was in late 2008.
Here is a look at the updated bear analogs for the gold stocks. We use the Barron’s Gold Mining Index as it has the longest history. The current bear is in line with the 1996-2000 bear. After declining 69% over two and a half years that bear mounted a rebound that lasted over a year. That was followed by a decline to new lows. The current bear is down 68% and at this point on the scale is in the worst shape relative to all the other bears.



For further comparison to the 1996-2000 bear, consider the figures for the other indices. Then the XAU declined 73%. At its recent low it was down 73%. Then the HUI declined 83%. It’s been down as much as 77% in this bear. The GDM index has lost 75% in this bear market and 77% in the 1996-2000 bear market. Meanwhile, GDXJ has lost up to 86% in the current bear market.
As we noted last week, the miners appear to be holding their November low and have a tradeable setup. The HUI is trading between 155 and 175 while GDX is trading between 17 and 20. A short-term rally to resistance is definitely possible. Given the current extreme oversold condition, are the miners ready to rebound through resistance and rally the way they did last January? On the other hand, will the metals cooperate? After 2013 tax loss selling, GDXJ rebounded over 50% within two months. We are working hard to prepare subscribers for this opportunity. Consider learning more about our premium service which includes a report on our top 5 stocks to buy.

Good Luck!

Jordan Roy-Byrne, CMT

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Dec 27 Implications for the Stock Market and Gold with a Yen Rally

Implications for the Stock Market and Gold with a Yen Rally

Summary

• The Yen has undergone a massive devaluation against the dollar in recent years
• US and Japan interest differentials suggests the Yen slide may reverse course
• A Yen rally could cause stocks to falter and gold to shine in 2015

Since late 2012, the Yen has fallen nearly 40% as the Bank of Japan (BOJ) has launched an all-out war to devalue its currency. The forces that would likely drive this push were no mystery. As outlined on Financial Sense in June 2012 (see Massive Japanese Debt Monetization Is Coming, Yen to be Devalued), Japan's ticking time bomb of debt was coming head to head with its demographic time bomb, which forced the BOJ to act. This can be seen in the handoff below as aging Japanese citizens began to sell their debt holdings while the BOJ ramped up.

Source: Bloomberg

The launch of quantitative easing (QE) in Japan late in 2012 opened the door for the yen-carry trade to be revived again as the following article from early 2013 highlights:

Remember the Yen Carry Trade? Well, It’s Back
As confidence returns to global markets, investors appear to be using the cheap yen once again to fund investments in risky assets — a trade that is likely to give the battered Japanese currency another boot lower in the months ahead, analysts said…
This backdrop coincides with a sentiment shift in financial markets, with investors increasingly moving into more risky assets.
"The yen is regaining its ground as a funding currency," said Jesper Bargmann, head of G11 currencies at Royal Bank of Scotland in Singapore. "Sentiment has changed in markets, pretty much since January 1. Risk appetite has returned, there's increased confidence and a search for yield, so the yen seems to be suffering as a result of that," he said…
A carry trade is when investors borrow in a low yielding currency, such as the yen, to fund investments in higher yielding assets somewhere else…
A weakening currency is central to the carry trade since it means that investors have less to repay when they cash out of the trade.

I don’t believe it is just coincidence that the USD surged relative to the Yen late in 2012 to early 2014 at the same time the U.S. stock market soared as shown below.

Source: Bloomberg

Given the rather dramatic decline in the Yen relative to the USD over the last two years, it makes sense to reevaluate how much more downside the Yen has and what the implications would be should the Yen rally in 2015. One way to analyze currency movements is based on interest rate parity (click for definition) in which currency exchange rates should move in line with the differential between country interest rates. As shown below, this theory more or less works in which the USD/JPY exchange rate tracks the difference between US 10-yr interest rates and Japanese 10-yr interest rates. However, there are times when the two diverge and these large divergences eventually get unwound rather sharply (see yellow shaded boxes below). We’ve seen three cases in recent years with one in 2010, 2011, and one in 2013. In all of these the JPY/USD exchange rate got the direction right and the interest rate differential played catch up. We are currently experiencing our fourth major divergence in recent years in which the USD has rapidly appreciated relative to the Yen and yet US long term interest rates have not risen relative to Japan; in fact, the interest rate differential has declined (see red shaded box).

Source: Bloomberg

This divergence can be unwound by the Yen rallying relative to the USD and the USD/JPY exchange rate falls, or US long-term interest rates can rise relative to Japanese to close the gap. Which event occurs in the months ahead (yen rally or US interest rates rally) will have very different outcomes for the market. If the Yen rallies and the USD/JPY exchange rate falls the Yen-carry trade will start to unwind and with it one element of market liquidity. As shown above, when the USD rallies relative to the Yen we tend to see strong U.S. stock market returns and so if the USD falls relative to the Yen we could see some market weakness ahead. In fact, if the Yen should decline we would be witnessing a backdrop that we haven’t seen since 2012: no QE from the U.S. Fed and a strong Yen—two major liquidity supports for U.S. financial markets for the last two years.
We’ve seen how QE has tended to float the U.S. stock market higher and when QE was turned off the stock market would stumble. However, the Fed embarked an open-ended QE late in 2012 such that QE was running for all of 2013 and the bulk of 2014 and coincident with this time frame was a massive devaluation of the Yen. The S&P 500 soared during these times in which both added liquidity to the system, which is shown by the green shaded regions below while the yellow regions show only an expansion in the Fed’s balance sheet. We’ve had a lot of stimulus over the past two years coming from Fed's QE and the Yen-carry trade. We know the Fed's QE is over and should we also lose the Yen-carry trade we could be in store for a bumpier ride than we’ve seen recently.

Source: Bloomberg

As mentioned above, the divergence between the USD/JPY exchange rate and the interest rate spread between the US and Japan can be resolved in two ways and my inclination is that we see the USD weaken relative to the Yen in the weeks and months ahead. Why? One reason, as shown above, is that the USD/JPY exchange rate is bumping up to resistance at the ~$120 level, which is the 2005-2007 resistance zone. So, from a technical standpoint it’s hard to see the USD appreciate further without some digestion and consolidation.
Secondly, from a purchasing power parity perspective (click for definition) the Yen is at its cheapest valuations relative to the USD since the middle 1980s. Using Bloomberg’s purchasing power parity function with the Consumer Price Index (CPI), Producer Price Index (PPI), and the annual OECD estimates, the Yen is between 15% to 34% undervalued relative to the USD. Given the multi-decade lows in Yen valuations, a further depreciation of the Yen appears unlikely.

Source: Bloomberg

Source: Bloomberg

Source: Bloomberg

Assuming for the sake of argument that the Yen does cool off in early 2015, what can we come to expect? As mentioned above, the Yen-carry trade has been associated with positive stock market returns and so an unwinding of the Yen-carry trade in which the Yen appreciates relative to the USD could see a weaker stock market, particularly coupled with the removal of US QE. Secondly, we could also see a pick up in overall investor anxiety in which safe haven assets like gold benefit. Both the Yen and gold peaked in 2011 and accelerated their down falls late in 2012. Should we see stabilization in the Yen ahead we could see stronger gold prices in 2015.

Source: Bloomberg

Also associated with Yen strength is a pickup in volatility as the Yen-carry liquidity tide goes out. This is shown below with the USD/JPY exchange rate shown inverted along with the Volatility index (VIX) with periods of Yen appreciation shown by the yellow shaded regions.

Source: Bloomberg

Summary
In my last article (click for link) I made the case that the U.S. was not at risk of slipping into a recession and the hallmarks of a bull market top were missing and thus argued the weakness experienced in December was a buying opportunity. The market has since rebounded sharply in recent days and looks like it will experience the seasonal Santa Claus rally into year-end and we could see some strength spill over into 2015.

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Dec 27 Oil Follows Gold’s Crash Pattern Tom McClellan

Oil Follows Gold’s Crash Pattern

McClellan Financial Publications

December 24, 2014
With oil prices having been cut in half over the past 6 months, many analysts are forecasting what this means for the economy, for jobs, for consumer spending, etc. But what I find interesting is the exact nature of the decline itself, and its resemblance to another recent decline in gold prices.
We have to go back to 1986 to find a similar decline in oil prices. There admittedly was a huge decline in 2008, from $145 down to $37 in just 8 months, but it came as the result of the pricking of a huge commodities bubble. There was also a huge decline in 1990-91, when Saddam Hussein spiked oil prices up to $40/barrel after he annexed Kuwait, and then prices crashed back down to $18. Each of those declines was from a price top that was way above prior levels.

But in 1986, there was a decline from a horizontal price structure, when the Saudis abandoned OPEC oil quotas. That decline was much like what we have just seen in 2014, also coming on Saudi action, and out of a flat price structure. And perhaps more interestingly, in 2013 there was another big decline from a flat structure, but not in oil prices. That 2013 decline was in gold prices, as shown in the top chart above.
The magnitude and the urgency of the price declines in gold and oil are similar, which made it reasonable for me to look at their patterns to see if there are other resemblances. Indeed there are, although the patterns do not really fall into step until around the July 2013 point in oil’s price history. That equates to the January 2012 price bottom for gold prices. Stating it more simply: Oil is now doing what gold was doing 18 months before.
The correlation has not always existed. The two patterns seem to have fallen into step together beginning around July 2013. Before then, the correlation was almost detectable, but not nearly as good as it came to be after that point. The implication of the current correlation is that if the recent pattern resemblance continues, then we should see a robust bounce in oil prices over the next 3 months. But while such a bounce would get everyone excited about a supposed new bull market in oil prices, that hope should be illusory.
As long as we are talking about the resemblance of oil’s late-2014 price slide to that of gold back in early 2013, it is also appropriate to once again make the comparison of gold’s current price pattern to what we saw before in the SP500. I showed this previously back on June 26, 2013.

Since then, gold has roughly followed the pattern laid down by the SP500, although the correlation has been imperfect. My sense is that if the Fed had not slathered the market with a whole bunch of quantitative easing (QE) to boost stock prices, we would have seen a better correlation. Still, the recent bottoming action in gold prices in 2014 matches the bottoming action of the SP500 in 2010, in the months following the May 2010 Flash Crash.
One important caveat is that these types of price pattern analogs tend to last for a while, and then they suddenly can stop working, usually at the moment when one is counting on them most to continue working.
So to summarize, the 2008-09 drop in stock prices saw an echo in the 2013 drop in gold prices, which has now had its further echo in 2014 for crude oil prices. There is a similarity in the way that investors panic out of their holdings in each, and that common physics/psychology shows up as a similar pattern in the price plot. More importantly for oil traders, we have now likely seen the climax point for the oil price decline, and up next is a robust but failing rebound which should get everyone excited about oil again in 2015, only to disappoint them all over again.

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