Gold, Silver, and Palladium Commentary June 17, 2020

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Gold, Silver, and Palladium Commentary
June 17, 2020
The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) continued to rise this week. With the front month silver and gold contracts closing yesterday at $17.52 and $1,726.30, respectively, the gold/silver ratio is now 98.53, down 21.7% from its all-time high set on 3/18/2020 but rising from its recent low on 6/1/2020.  August Gold (Figure 2) continued to trade sideways while July silver (Figure 3) is descending after reaching a recent peak also on 6/1/2020.  Silver’s decline since June 1st coincided with a 1.5% increase in open interest indicating a small increase in shorts which is being confirmed by the Commitment of Trader data. Silver now appears to be settling back into a trading range between 16.3 and 18.8 waiting for the next catalyst to drive prices.

 

On 6/16/2020 the August COMEX gold contract (Figure 2) ended the day at $1,733, up from $1,721 at the close on 6/8/2020 while for the first time since mid-May, there was a small increase in open interest.  This combined with an increase in implied volatility, over the last three weeks, and skewing to the downside may indicate traders are preparing for retest of the $1,680 area. This taken together with the thesis of the 2015 In Gold We Trust extended report highlighting the tendency for gold to go lower while the gold/silver ratio is increasing, increases the likelihood of short-term selling.  We expect gold will continue to trade in the range between $1,674 and $1,771 for the next 7 days.

 

Palladium was essentially unchanged for the last few weeks while total open interest, as it continues to decline, is doing so slowly.  Without a clear signal of increasing open interest or news on increased production demand, we expect palladium to continue to trade in a similar pattern for the near future.

Finally, I leave you with the PricedInGold.com chart showing GDP in billions of gold grams.   The price of gold began its latest climb in June of 2019, while this chart shows the GDP in terms of gold grams began to decline at the end of 2018.  Even with the FED intervention beginning again in 2019, this chart was declining before gold began its climb.   It seems that increasingly larger injections may be required to maintain a system that depends so much on Fed’s monetization. As gold prices rise, it takes less gold to buy the nation’s GDP, implying an upward trend for gold prices.

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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.