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OPINION

Bling or not bling?

Bling or not bling?
March 17, 2017
Bling or not bling?

Commodity prices are certainly cyclical, none more so than foodstuffs. But so too are energy, metals, and industrial raw materials such as timber and cotton. They are also subject to swings in supply and demand, the vagaries of fashion, and the sudden need to switch to cash. All of these were in evidence as markets boomed into 2008 and 2011, banks and hedge funds muscling in to this newly discovered asset class. Then boom turned to bust as is so often the case.

Looking at the charts of four important precious metals, we can see that while they are similar, they were not all created equal. Silver being the cheapest of the bunch is accessible to those with the least purchasing power, and therefore its price swings are often the biggest in percentage terms; this was the case this year with a 17.7 per cent rally to $18.48 per ounce. Technically, the more interesting feature is that the move saw nine consecutive weekly rallies. The Rule of Eight, as it's known, postulates that any market that moves in one direction only for between eight and 10 consecutive periods is overstretched and due a correction.

 

 

Sure enough, it peaked at the 50 per cent retracement level, just above the 200-day moving average, and under the most recent down trend line. Therefore we feel that yet another new interim high has been established, maintaining the series of these since the record high of $49.51 in April 2011. Expect a drop to key secular chart support around $14.00.

 

 

Spot gold is very similar, up 11.6 per cent with a bearish candle halfway through the rally. Again stalling at the 200-day moving average with a bearish engulfing weekly candle its body is bigger at both ends than the previous one-, 50- and 200-day moving averages still negative. We have pencilled in a drop to pivotal support between $1,050 and the psychological $1,000 area.

 

 

Platinum's chart is similar but more messy. The trickier spotting salient features is in any chart, the more likely forecasts will go wrong. Here too we favour a drop next quarter to critical support between $655 and $765 an ounce.

 

 

The odd man out is clearly palladium, another of the six platinum group metals. It too put on a spurt in January but has made precious little progress since. The reason for this is that it's bumping up against a cluster of secular long-term resistance levels, roughly between $800 and $850 (2011's high) and 2014's multi-year peak at $910 per ounce. Simplifying, since 2010 it's traded in a very broad band between $550 and $850 most of the time. This is impressive in that it also held in a broad band between $175 and $425 from 2002 to 2009. For those with memories as long as mine it held between $80 and $175 from 1984 to 1997. Industrial demand is unlikely to dissipate any time soon.

Charts for this piece are: spot silver, gold, platinum and palladium