Gold, Silver, and Palladium Commentary
September 16, 2020

The front month contracts of gold and silver are up from last week 1.21% and 1.79%, respectively. Gold continues to trade in a pennant type pattern.  It is currently near the point of the pennant and would therefore expect a more pronounced move in the next few days.  The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) fell -0.58% compared to last week, still moving sideways since early August.   With the front month gold and silver contracts closing yesterday at $1956.30 and $27.35, respectively, the gold/silver ratio is now 71.54, 9.42% higher than the corresponding 15-year average.   December gold (Figure 2) closed yesterday at $1966.20, up 1.18% from the close on September 8.  December silver (Figure 3) closed at $27.46, up 1.75% since last week, also trading in a pennant pattern.

From an open interest perspective, gold’s total open interest is increasing slowly, ~3% since last week, but on low volume.   The latest CFTC data for gold for non-commercial net position of funds show funds are net long, near upper historical levels and rose slightly this last week.  This rise was driven by an increase of non-commercial long positions while non-commercial short positions again remained unchanged.  Silver total open interest rose this week, for the first time since August 10, but on low volume.  The latest CFTC data show the silver non-commercial net positions of funds are flat with non-commercial’s equally reducing long and short positions.  As mentioned last week, the net non-commercial position of funds and total open interest continue to trend in opposite directions since mid-August.   The increase in total open interest this last week may be an indicator that non-commercial’s or commercial’s are again adding to their positions.

Now for Palladium.  Last week we said that rhodium was rising to levels seen early in the year.   As high rhodium prices can result in increased palladium demand, we mentioned the price of palladium may rise.  Palladium closed at $2414.50 yesterday up 4.71% from the close last week Tuesday breaking above $2365 at the close on July 27.  Total open interest jumped 4% last week, rising along with increasing price, possibly indicating an increase in long positions.   But this rise was on low volume.   The latest CFTC report shows net non-commercial fund positions increased 2% since the previous report.   The palladium/silver ratio climbed slightly this week with the increase in palladium.   As a note, rhodium climbed an additional 8% this last week which may continue to pressure palladium higher as well.

The final thoughts I leave with you are regarding the federal reserve meeting held yesterday and today, with an announcement this afternoon.  Per Gary Wagner’s article from yesterday, found here, it is expected the Federal reserve will release its ‘dot plot’ which will map out the basic intent and timeline that the Federal Reserve members believe will be necessary to keep interest rates at near zero levels until 2023.  The release of Federal Reserve project materials, found here,  confirmed plans to maintain rates near zero through 2023.  As the price of gold tends to follow real interest rates, today’s announcement implies continued support for the price of gold.

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The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

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