The precious and industrial metal markets will continue to be supported in the short-term by global political policies aimed at kicking the can down the road. However, these issues will surface in the global slowdown of 2012. The combination of weak 2012 demand and warehouse storage surpluses will end the decade long rally.
The European Union’s design flaws have created predatory private lending on a scale that dwarfs the U.S. sub prime debacle. The austerity measures being forced on Greece, Ireland and others are dangerously close to indentured servitude. How long will it be before the populations of these countries choose to determine their own destinies and default, rather than continuing to subsist with no greater hope for the future than U.S. sharecroppers after the Civil War?
Analysis of the tsunami’s effect on Japanese auto production combined with platinum demand from the fuel cell mandate and other BRIC country auto production tells us that the gold platinum ratio is out of balance. Commercial traders have already begun purchasing platinum and are now being followed by commodity trading advisors and commodity funds.
The Euro currency’s weakness due the reprofiling of Greek debt has distorted the classic relationship between the Dollar and gold, allowing both of them to rise together. We believe the Dollar’s strength and gold’s rally could continue through this summer as the Euro Zone sorts out the crushing debt of its member nations.
Last week I suggested that the blame for the sell off in silver was incorrectly placed on the small speculators’ direct participation in the futures markets and further added that the volatility we’ve experienced is going to be with us for quite some time to come. This week we’ll explain the effect of Commodity Index Traders (CIT’s ) and Exchange Traded Funds (ETF’s) on the commodity markets.
Silver prices fell more than 30% last week. Would this be physically possible by wiping out the entire small trader population, which holds 15% of the market’s open interest? Once again, unbiased math makes it a physical impossibility.
Commodity prices put in a higher floor than they had from September 11th through the bubble top in ’08. The ’08 bottoms in the commodity markets have simply served as a new, higher floor price. The market has since traded higher on growing global demand, ETF investment and a falling Dollar. Therefore, the recent rallies are not bubbles, and that is the scary part.
We traded the economic collapse of ’08, an inward bubble, as well as the commodity bubble that immediately preceded it. We’ve analyzed them mathematically through standard deviations and statistical analysis. We’ve read university studies, which focus on the psychological aspects of the markets’ participants and we’ve watched politicians blame it all on the speculators. Out of all of this, there are a few things that help us understand where we are now, and that is the key to investing.
Commercial traders provide tell us what their expectations are. How will the end of QE2 effect commodity futures prices? Commercial traders are taking risk off of the table prior to the Federal Reserve Board’s April 26th meeting.
The use of corn for ethanol will consume 40% of this year’s crop. The global demand for corn continues to rise as developing countries feed their own middle class diets with more meat. Global meat consumption is still only 20% of the average American’s diet. The combination of these strains could push corn futures to all time highs, even without any weather problems.
