Mid-Week, Weekly Review of Gold, Silver and Palladium November 18 2020

Mid-Week, Weekly Review of Gold, Silver, and Palladium
November 18, 2020

Gold and silver price movements were more subdued this week with the front month contract for gold up 0.49% and silver up 0.77% at the close of trading yesterday, with respect to the close on November 10th, 2020. The ratio of the month 1 Gold contract to the month 1 Silver contract (Figure 1) is down 0.3% compared to the close on the 10th. The ratio continues to move sideways, still not giving any clear direction for gold. As a reminder, a falling ratio often implies gold may move due to the economics of silver. With the front month gold and silver contracts closing yesterday at $1884.50 and $24.64, respectively, the gold/silver ratio is now 76.5, 16.15% higher than the corresponding 15-year average. December gold (Figure 2) closed yesterday at $1885.10, up 0.46% and March silver (Figure 3) closed at $24.77, up 0.67% from the close on November 10th.  It should be noted that silver March open interest is now higher than December, so we have moved to the March silver contract.

From an open interest perspective, gold’s total open interest rose 2% over the last week, holding near levels seen since August. Volume is once again below the 50-day SMA. The latest CFTC report for gold (11/10) for non-commercial net position of funds shows net positions continuing to fall, nearing levels seen in June and down 40% from the all-time high in February.  While both non-commercial short and long positions are falling, non-commercial longs are falling faster. It is interesting to note that while non-commercials are reducing net exposure, total open interest has remained stable, and implied volatility skew has moved slightly to favor higher priced calls over the last 5 trading days.

Now onto silver… Silver total open interest rose 3.8% since last week (November 10th) and is up 5% for the last two weeks, regaining levels lost after the election with volume is near the 50-day SMA. The latest CFTC data (from 11/10) show non-commercials continue to increase their net long positions by reducing their short positions while the total open positions (futures + options volume) are on a downward trend.

Now for Palladium. December palladium closed at $2326.5 yesterday, giving back 5.86% from the close last week Tuesday. Total open interest fell 1.8% from Tuesday last week but is still up 8% over the last two weeks.  Palladium volume also continues to remain above its 50-day SMA. The November 10th CFTC report showed a huge 50.3% increase in non-commercial net fund positions which effectively erases the anomaly from last week.  This result is a slight increase in net long non-commercial positions from two weeks ago. We mentioned last week that the price of palladium did not track with the reduction in net long positions, possibly resulting in some short covering.  This may be the case, and palladium’s fall in price may be giving some of that back plus continued concerns from COVID as well as additional news that automakers continue to substitute platinum for palladium.

The final thoughts I leave you with today are regarding the price of palladium.  The World Platinum Investment Council released its quarterly report today, which can be found here. The first six pages are an overview by CEO Paul Wilson, who provides background on several items. These include supply, demand, and substitution of platinum for palladium. He mentions what investment is available for exploration, is shifting into palladium-heavy fields versus platinum fields. This may make more platinum available in the future. In addition, as demand for catalytic elements is increasing due to more vehicles and more stringent pollution standards for both Europe and China, the $1,000 premium for palladium over platinum is driving OEMs to substitute more platinum for palladium. He also says this substitution is at a 1:1 exchange of platinum for palladium. The real amounts substituted is confidential and he believes this substitution “…is far greater than limited public information might suggest and that substitution volumes [platinum] are likely to increase rapidly in 2021 and beyond as the successful replacement of palladium by platinum is applied to a higher potion of new gasoline and diesel models launched.” While many of these changes will take time to implement, the changes to platinum to palladium may be occurring faster than expected and could possibly put downward pressure on palladium in the near future, especially as this news is digested.  However, overall demand may continue to improve with additional catalyst need.


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Mid-Week, Weekly Review of Gold, Silver and Palladium November 4 2020

Mid-Week, Weekly Review of Gold, Silver, and Palladium
November 4, 2020

Prices for precious metals are volatile today as there is currently no clear winner after the US presidential election yesterday.   As estimates stand at the time of this writing, Biden will have between 270-306 electoral votes and will win the presidency. A scenario of market reflation may take place in that case, which could be positive for precious metals, assuming that if any strengthening of the dollar takes place along with that scenario, such dollar strengthening will not offset the gains due to market reflation. This uncertainty along with continued pressures from COVID may continue to result in some volatility for the foreseeable future.   The front month contract for gold was almost unchanged and silver was down at the close of trading yesterday, with respect to the close on October 27, 2020.  Gold and silver were down 0.02% and 0.9%, respectively (red arrow identifies close on the 27th).  The ratio of the month 1 Gold contract to the month 1 Silver contract (Figure 1) is up 0.89% compared to the close on the 27th.   Through last week, the gold/silver ratio was descending since the end of September, a positive for gold.  However, with the moves over the last week, the ratio is now moving sideways.  With the front month gold and silver contracts closing yesterday at $1908.50 and $24.31, respectively, the gold/silver ratio is now 78.52, 20.7% higher than the corresponding 15-year average.

December gold (Figure 2) closed yesterday at $1910.40, down 0.08% and December silver (Figure 3) closed at $24.33, down 0.96% from the close on October 27th.  From an open interest perspective, gold’s total open interest is slowly trending down in sync with the price of gold.  The 50-day SMA for futures and options volume continue to decline since the end of September.  The latest CFTC report for gold (10/27) for non-commercial net position of funds show both long and short positions were reduced with the net long positions falling 1.8% since the previous week’s report.  But the net positions are little changed since the end of September.  As mentioned last week the non-commercial funds continue to build their short positions, resulting in a gradual reduction in the number of net-long positions.   Now onto silver… Silver total open fell 4.3% since last week Tuesday, which is a significant change compared to increasing open interest seen since the end of September.  Due to the delay in reporting CFTC data, we will not know if the October 27 report will show similar action, until this weekend.   As mentioned last week, since the August 11th CFTC report, the non-commercial funds have increased their net long positions by 12% at the same time reducing their short positions by 23%.  The 50-day SMA of total futures and options volume has fallen in the last month to levels more consistent with early to mid-2019.  The Silver Institute posted their October 2020 newsletter on Monday, found here, stating global silver Exchange Traded Product (ETP) holdings growth nearly tripled growth on year over year through the first three quarters of 2020.  It grew 297M oz, where the Silver Institute had projected a growth of 120M oz in their World Silver Survey for 2020, published near the end of 2019.   Recent indications of a partial recovery of industrial silver usage may again be muted due to new COVID lockdowns being instituted worldwide.

Now for Palladium.  December Palladium closed at $2297.80 yesterday, down 2.38% from the close last week Tuesday.  Total open interest fell 4.5% from Tuesday last week and is essentially unchanged from open interest two weeks ago.  Total palladium volume remains low and, in a range, like volumes prior to 2008.  The Oct 27th CFTC report shows an increase of 1.5% in non-commercial net fund positions.  We expect an increasing number of COVID cases, resulting in additional lockdowns may slow the recovery in palladium demand.   Rhodium prices seem also to indicate this as it fell on October 28th but has recovered some of its reduction.

The final thought I leave with you today is a recommendation to listen to The Incrementum Inflation Diversifier – Advisory Board Call – Q4 2020, found here.    The group does an excellent job outlining the current market with respect to deflation/inflation and explain their positions at length.   Over the last few months, we discussed negative interest rates and the price of gold being negatively correlated resulting in rising gold prices as real rates drop.  With rates near zero and the Federal Reserve stating they do not plan on using negative rates, is there still an upside to gold?   In their discussion they stated yes because there are ways to achieve negative rates through the market.   Doing so would be positive for gold.


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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.

Mid-Week, Weekly Review of Gold, Silver and Palladium October 28 2020

Mid-Week, Weekly Review of Gold, Silver, and Palladium
October 28, 2020

Prices for precious metals are down today, as partial lockdowns are implemented in Europe and record cases of Covid-19 are reported in the US and Europe. Demand for ICU beds is rising which exacerbates the fear that a second wave is taking hold in the US and Europe. Prices are pressured as liquidity demand increases given the market downturn, and especially as margin calls may be coming in. Such downward pressure on the precious metals might continue as market turmoil and volatility are rising. They should stabilize within 6-9 trading days and they have good chances of moving upwards from then on. The front month contracts for gold and silver were all down from the close on October 20, 2020, with gold and silver down 0.08% and 1.65%, respectively (red arrow identifies close on the 20th). The ratio of the month 1 Gold contract to the month 1 Silver contract (Figure 1) is up 1.59% compared to the close on the 20th.  Since the end of September, the gold/silver ratio is descending, which tends to be positive for gold. With the front month gold and silver contracts closing yesterday at $1908.80 and $24.53, respectively, the gold/silver ratio is now 77.83, 17.6% higher than the corresponding 15-year average. December gold (Figure 2) closed yesterday at $1911.90, down 0.18% and December silver (Figure 3) closed at $24.57, down 1.64% from the close on October 20th.

From an open interest perspective, gold’s total open interest has seen little movement over the last few weeks while its volume 50-day SMA continues to decline. The latest CFTC report for gold (10/20) for non-commercial net position of funds show funds net long positions rose 5.3% from the previous week’s report, but this move brings the net fund position back to a level seen in the October 6th report.  From a longer-term perspective (since the end of July) the non-commercial funds continue to build their short positions, resulting in a gradual reduction in the number of net-long positions. Since the end of July non-commercial long positions decreased 8% while short positions increased by 27%. Now on to silver… Silver total open interest continues to slowly rise since the recent low at the end of September. Likewise, the latest CFTC data (10/20) show the silver non-commercial net positions also continue to rise, up 8.7% from the previous report. Since the August 11th CFTC report, the non-commercial funds have increased their net long positions by 12% at the same time reducing their short positions by 23%.  It should be noted, this is opposite to how the funds are positioning their gold positions.  At first glance one might think this means the non-commercial funds are preparing for lower gold prices. But with non-commercial fund gold net long positions near historic highs throughout 2019, they may be bringing the net long positions back in line with historic averages as seen in Figure 5.

Now for Palladium. December Palladium closed at $2353.90 yesterday, down 2.64% from the close last week Tuesday. Total open interest continues to slowly rise, up 4.9% from Tuesday last week. The Oct 20th CFTC report shows an increase of 0.8% in non-commercial net fund positions.  As we have discussed palladium tends to follow the price of rhodium due to similar uses in catalytic converters in gasoline powered engines.  As rhodium price rises, lower priced palladium is substituted for rhodium, increasing palladium demand, and thus keeping upward price pressure on the metal. With recent news of additional shutdowns, due to COVID across the US and Europe, this may put downward pressure on both metals over the next few weeks.

The final thought I leave with you today is a regarding the price of palladium.  Michael A. Gayed, CFA wrote an article and published through Seeking Alpha on October 19th.  Even though the article was published 9 days ago, it contains a good summary of potential upside and risks for palladium for the next few years.  The article can be found here.  In summary, he continues to see a long-term demand-supply mismatch, with demand larger than supply.  Palladium demand is being driven by European consumers continuing to switch from diesel to gasoline powered vehicles, the introduction of RDE tests in Europe and increased exhaust standards in China. The risks (lower demand and more supply, but longer term) may be driven by newer lower priced materials to replace palladium and potentially new deposits of the metal.


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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.

Mid-Week, Weekly Review of Gold, Silver and Palladium October 15 2020

Mid-Week, Weekly Review of Gold, Silver, and Palladium
October 15, 2020

The front month contracts for gold and silver were mixed from the close on October 6, 2020, with gold down 0.66% and silver up 0.90% (red arrow identifies close on the 6th). The ratio of the month 1 Gold contract to the month 1 Silver contract (Figure 1) is down 1.55% compared to the close on the 6th.  Since a falling gold/silver ratio tends to be positive for gold and it has been moving lower since its recent high at the end of September, we will need to continue to monitor this trend. With the front month gold and silver contracts closing Tuesday at $1894.60 and $24.13, respectively, the gold/silver ratio is now 78.41, 19.7% higher than the corresponding 15-year average. December gold (Figure 2) closed Tuesday at $1894.60, down 0.74% and December silver (Figure 3) closed at $24.13, up 0.87% from the close on October 6th.

From an open interest perspective, gold’s total open interest continues to fall and is down 0.4% from last week Tuesday, with volume remaining below its 50-day average. The latest CFTC report for gold (10/6) for non-commercial net position of funds show funds net long positions rose 2.5% from the previous week’s report.  This rise in net long positions was driven by an increase in non-commercial longs and a reduction in non-commercial short positions.  From a longer-term perspective, both the CFTC net positions and total open interest are moving in a similar manner.  On to silver… Silver total open interest is up by 1.9% with respect to last week Tuesday. The latest CFTC data (10/6) show the silver non-commercial net positions of funds rose 0.6%, this while increasing both long and short positions.  For the last several weeks the non-commercial funds have cut their short positions while holding their long positions near constant. For the first time since mid-September we see they increased their short positions in the 10/6 report.
Now for Palladium. December Palladium closed at $2344.30.2 Tuesday, down 1.96% from the close last week Tuesday. Total open interest rose 4.3% from Tuesday last week and when viewing the last two weeks, rose 9.6% from two weeks ago. The 10/6 CFTC report shows an increase of 21% in non-commercial net fund positions.  Rhodium is also remaining elevated in price which will tend to encourage manufacturers to substitute palladium for rhodium. This will drive the demand of palladium which should tend to support the price of palladium, assuming COVID does not result in a lessening demand for new autos.
The final thought I leave with you today is a reminder that the price of gold currently seems to be pegged to the strength of the dollar, as we mentioned last week. Inflation and inflation expectations have backed off from their highs mid-year and Treasury bond rates are slowly rising from the mid-year lows. Both moves are negative for gold in the short term.  The IMF recently stated it believes that austerity measures are not inevitable to reduce the impact of the pandemic on public finances.  Depending upon how the rest of the word perceives this message, it could be positive for the dollar.  It could also be positive for inflation if the velocity of money increases from current lows. As per my comments from last week, I would recommend keeping an eye on inflation and the possible impacts that it may have on gold.  Watching the price of copper with respect to gold while also keeping an eye on the direction of the gold/silver ratio may provide early notice of another move in gold.

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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.

Mid-Week, Weekly Review of Gold, Silver and Palladium September 30 2020

Mid-Week, Weekly Review of Gold, Silver, and Palladium
September 30, 2020
The front month contracts for gold and silver are down from the close on September 22, 2020, 0.23% and 0.25%, respectively. The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) is essentially unchanged compared to last week. With the front month gold and silver contracts closing yesterday at $1,894.30 and $24.38, respectively, the gold/silver ratio is now 77.69, which is 17.3% higher than the corresponding 15-year average. December gold (Figure 2) closed yesterday at $1,903.20, down 0.23% from the close on September 22. December silver (Figure 3) closed at $24.45, down 0.32% from the close on September 22.

From an open interest perspective, gold’s total open interest is down 2.3% from last week, with volumes near recent lows and below its 50-day average. The latest CFTC data for gold (9/22) for non-commercial net position of funds show funds net long positions fell by 11% from the previous week.

This fall in net long positions was driven by both a decrease in non-commercial longs and a rise in non-commercial shorts.   This change corresponds to the increased strength of the dollar. For silver, total open interest fell 0.7% over the last week, but rose 2% over the last two days. The latest CFTC data (9/22) show the silver non-commercial net positions of funds declined in this last report, once again moving in sync with total open interest.  The CFTC reduction in non-commercial net positions was driven by a decrease in both long and short non-commercial positions with two times more long positions than short positions being closed.

Now for Palladium. December Palladium closed at $2,329.3 yesterday, up 4.47% from the close last week Tuesday.  Total open interest fell 5% last week on top of a 4% decline last week. The 9/22 CFTC report also shows a decline in non-commercial net fund positions.  The palladium/silver ratio continued to climb this week with palladium’s rise.  Rhodium is still elevated in price but continues to give back price.

The final thoughts I leave with you today are about the 2020 Chartbook of the “In Gold We Trust” report published by Incrementum, which can be found here.   If you have not read the report, I would highly recommend doing so.  The Chartbook mentioned here updates many of the charts from the 2020 “In Gold We Trust” report and updates their executive summary.  They still see this decade as a ‘golden’ decade where gold, silver, and mining stocks will continue to shine.  Longer term, their perspective for gold, silver and mining stocks are positive. They consider the recent relaxing of the inflation target by the Federal Reserve as a continuation of the geopolitical upheavals that will continue to be expected.  They also consider portfolios holding anti-fragile assets to be less vulnerable to shocks.


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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.

Mid-Week, Weekly Review of Gold, Silver and Palladium September 23 2020

Mid-Week, Weekly Review of Gold, Silver, and Palladium
September 23, 2020

The front month contracts for gold and silver are down from the close on September 15, 2020, 2.95% and a whopping 10.62%, respectively. As we expected and mentioned in our commentary last week, both gold and silver had pronounced moves this week after reaching the narrow end of pennant patterns. These moves came after the Federal Reserve provided more ‘clarity’ regarding the future of interest rates. The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) rose significantly by 7.9% compared to last week, reaching levels last seen in early August.  With the front month gold and silver contracts closing yesterday at $1898.60 and $24.44, respectively, the gold/silver ratio is now 77.68, 18.85% higher than the corresponding 15-year average. December gold (Figure 2) closed yesterday at $1907.60, down 2.98% from the close on September 15. December silver (Figure 3) closed at $24.52, down 10.71% from the close on September 15.

From an open interest perspective, gold’s total open interest is up 3% from two weeks ago, but essentially flat from last week, this on volume near its 50-day average. The latest CFTC data for gold (9/15) for non-commercial net position of funds show funds are continuing to increase net long positions.  But this last report also saw a rise in the number of short non-commercial positions, the first rise since early August 2020.  Silver total open interest fell 2.5% this week, and is on par with total open interest two weeks ago. The latest CFTC data (9/15) show the silver non-commercial net positions of funds continued to rise this last report, driven by an increase in long and decrease in short non-commercial positions. As a note, silver total open interest also fell 3.2% on 9/21, the day the December silver contract fell, indicating closing of long silver positions. As the CFTC data showed a continual decrease in short positions, prior to the selloff, it is possible this selloff was overdone. The next few days will provide more clarity.

Now for Palladium. December Palladium closed at $2229.6 yesterday down 7.66% from the close last week Tuesday. Total open interest fell 4% last week, giving back the rise seen the previous week. This decrease tied with the fall in the price of palladium indicates the closing of long positions. The latest CFTC report shows net non-commercial fund positions continued to increase, but this was with both an increase in both long and short positions, unlike silver. The palladium/silver ratio continued to climb this week indicating the weakness in silver, possibly regarding news that Europe is again being affected by COVID. Rhodium is still elevated in price but has given some back since last week. Should rhodium remain elevated and silver resume its climb, indicating continued industrial strength, we would expect to see continued upward pressure on palladium.

The final thoughts I leave with you are surrounding the basic pressures affecting the prices of metals. Frank Giustra, CEO of Fiore Group, has given only a few interviews over the last few years on his view on gold and the money supply. I have found them to be to the point and useful. The most recent interview was published yesterday, titled “The US Dollar, Gold Price, Gold Stocks, Philanthropy, Inequality, Taxation and Growth – A Freewheeling Conversation Between Ross Beaty and Frank Giustra” and can be found here. This ‘interview’ was 40+ minutes and more of a free discussion between Mr. Giustra and Mr. Beaty. The first part was useful in outlining what Mr. Giustra said he believes are main fundamentals that will continue to drive the price of gold. These are the inability of the Federal Reserve to raise interest rates without causing severe damage to the economy and world-wide political instability, some of the worst he has seen in his lifetime.  These are positive for gold meaning he believes gold will continue to rise longer term.  Why do I mention his views? Because this week saw declines in gold, silver, and palladium prices. We expect to see continued volatility in these metals’ prices, possibly with some continued downward pressure on gold. This downward pressure is driven by the recent reduction in inflation expectations resulting in rising long-term yields, news regarding possible new lockdowns in Europe due to COVID and increased news regarding possible deflation. However, longer term we believe there will be continued pressures to drive up the price of gold.

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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.

Gold, Silver, and Palladium Commentary September 16, 2020

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 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.

Corn Calendar Spreads During Corn Price Rally

Corn Calendar Spreads During Corn Price Rally

September 15, 2020

Corn prices have rallied during the last 4 weeks.  December Corn has increased nearly 55 cents from August 10, with the December 2020 Corn contract settling at $3.65 on Friday, September 11, 2020.  On an absolute level prices are still relatively low; calendar spreads are at historical high levels.  The December 2020 – March 2021 corn spread has moved to the highest level to for this time of the year.  Given the structure of the corn forward curve, should prices even pull back, the December-March Corn calendar spread could continue to increase.

The chart below can be constructed in the Fundamental Analytics platform under Prices > Corn > Continuation > High-Low-Close Candlestick.

Corn Candlestick Time Series

The chart below can be constructed in the Fundamental Analytics platform under Prices > Corn > Instruments and Spreads.


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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.

Refiners’ Margins are at Historic and Painful Lows

Refiners’ Margins are at Historic and Painful Lows

September 11, 2020

As one measure of refineries’ profitability is the profit margin (“Crack Spread”), the difference between the price of a refined product and the price of the underlying crude oil.  For example, the first chart below is the difference between the December Heating Oil (ULSD) price and the December WTI Crude Oil price.  The current December Crack spread (black line) has been declining since January and is currently below $10.  We need to go back to the 2009 recession to observe lower Heating Oil crack spreads.

Comparing the December Heating Oil crack spread with the December RBOB Gasoline crack spread (the second chart below), we observe that the Gasoline crack was even negative mid-March when the US health authorities announced the COVID-19 lockdown.  It has been recovering, but still at historically low levels

The charts below can be constructed in the Fundamental Analytics platform under Prices > Instruments and Spreads > ULSD NY Harbor, RBOB Gasoline.


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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.

Gold, Silver, and Palladium Commentary September 9, 2020

Gold, Silver, and Palladium Commentary
September 9, 2020

The front month contracts of gold and silver are down from last week -1.79% and -5.69%, respectively. Gold continues to trade in a pennant type pattern and is currently near the top of the pennant.  The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) rose 3.98% since last week, moving sideways since early August.   With the front month gold and silver contracts closing yesterday at $1933.00 and $26.86, respectively, the gold/silver ratio is now 71.955, 10.6% higher than the corresponding 15-year average.   December gold (Figure 2) closed yesterday at $1943.20, down 1.80% from the close on September 1.  December silver (Figure 3) closed at $26.99, down 5.69% since last week, settling into a sideways movement.

From an open interest perspective, gold’s total open interest increased 0.6% since last week and is essentially flat since early August, and it is still well above the 5-year average.   The latest CFTC data for gold for non-commercial net position of funds showed an increase to levels seen in the August 11 report.  This was driven by an increase of non-commercial long positions while non-commercial short positions were essentially unchanged.   Silver total open interest continues to fall from the recent peak on August 6 and is down 23.5% since that date.  However, the latest CFTC data show the silver non-commercial net positions of funds are up 2.7% at the same time.  Both non-commercial longs and shorts are up for the week.    It is interesting to note the net non-commercial position of funds and total open interest have been trending in opposite directions since mid-August.  The reduction in total open interest seems to be driven by a reduction in net commercial positions possibly indicating commercials have a lower need for hedging due to silver on-hand due to lower demand.

Now for Palladium.  Palladium closed at $2305.80 yesterday, down 0.23% from the close last week Tuesday and remains range bound between $2140 and $2365.   While total open interest is up 1% since last week, it is down 7% since mid-August and a massive 64% since January 2020.   The latest CFTC report shows net non-commercial fund positions increased 8% since the previous report.   The palladium/silver ratio jumped this last week with the reduction in the price of silver.   It should be noted the price of rhodium continued its climb and is now above $13,000.  The last time rhodium hit these levels, palladium prices soared to $2700 as catalytic manufactures began to replace rhodium with more palladium in an attempt to reduce the overall cost of materials.

The final thoughts I leave with you are regarding inflation, inflation expectations and the future price of gold.   It is often stated that inflation is affected by expectations of inflation.  From a very simplistic standpoint, as consumers expect increasing inflation, they often pull forward purchases, increasing demand and higher demand, price.  Therefore, in a way, the expectation of inflation can drive inflation.   This is important as much has recently been written and said about higher inflation driving down real yields and as we have stated in the past, the price of gold is recently inversely correlated to real yields (as real yields fall, the price of gold rises).    I believe the graph below, Figure 5, tells an interesting story regarding inflation and expected inflation.  Immediately after the initial Fed COVID package occurred the University of Michigan inflation expectations rose significantly to a level just above peaks in 2015 and 2018.  But the short-term level has not risen higher, even with the numerous doomsday scenarios regarding fiat currencies.   Unless the short term inflation expectations continue higher or actual treasury rates continue to fall, it appears that upward pressure on gold due to real yields will be limited for the foreseeable future.


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Best Regards,

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.