Precious Metals: Gold And Silver Hold Key Technical Levels…For Now

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May 17, 2011 12:58pm NYSE:AGQ NYSE:GDX

Sumit Roy:  In last week’s Precious Metals Monitor, we asked whether gold and silver prices were carving out a bottom or merely experiencing a “dead-cat bounce” before heading lower.

Seven days later, that question remains unanswered.   

Overall, the precious metals complex continues to consolidate near recent lows. With the exception of silver, prices remained little changed over the past five sessions. Gold fell 1.42 percent; silver lost 9.61 percent; platinum shed 2.21 percent; and palladium sagged by 1.82 percent. Even silver’s move wasn’t that significant, as it leaves the extremely volatile metal in its recent range.   

Bulls would argue that this is all a part of the bottoming process, while bears may view current trading action as consolidation before another move lower. In either case, traders are watching to see whether the metals can hold onto several key technical levels.   

Gold put in its recent low on May 5 at $1,462.45/oz. Since then, prices have been fluctuating comfortably above that level, just above and below $1,500/oz.   

Silver put in a low on May 6 at $33.10/oz before rebounding on that same day to close at $35.63/oz. On May 12, silver prices breached those earlier lows to trade as low as $32.31/oz, before rebounding to settle at $34.72/oz. For all intents and purposes, silver has thus far managed to keep from breaking down decisively, but prices remain uncomfortably close to this $32-35 support level. Traders are also watching the $1,750/oz and $700/oz levels on platinum and palladium, respectively.   

Gold Daily Chart 1-Year:   

Gold Daily Chart 1-Year   

Silver Daily Chart 1-Year:   

Silver Daily Chart 1-Year  
Platinum Daily Chart 1-Year:  
Platinum Daily Chart 1-Year   

  Palladium Daily Chart 1-Year: 

Paladium Daily Chart 1-Year  
ETF Holdings
Just as prices were relatively little changed last week, so were ETF holdings. We haven’t seen the snapback in investor interest that many expect, but at least the bleeding has stopped—for now.
Gold ETF holdings fell by 546,000 troy ounces, or 0.83 percent, while silver ETF holdings declined by 549,000, or 0.12 percent. Platinum ETF holdings rose by 2,716 troy ounces, or 0.2 percent, and palladium ETF holdings sagged by 2,660 troy ounces, or 0.12 percent.

Gold ETF Holdings   

Silver ETF Holdings   

Platinum ETF Holdings   

Palladium ETF Holdings   

Key Ratios 

Thanks to silver’s underperformance last week, the gold/silver ratio continued to advance higher, jumping from 40.2 to 43.27 over the past seven days. The gold/platinum ratio hit another two-year high at 0.85 from 0.842 last week; the gold/palladium ratio fell to 2.07 from 2.09, while the platinum/palladium ratio declined to 2.45 from 2.49.   

Gold Silver Ratio   

Gold Platinum Ratio   

Gold Palladium Ratio   

Platinum Palladium Ratio   


If we had to choose one factor to explain the recent lackluster performance in precious metals—and for that matter, the overall commodity sector—it would be the rally in the U.S. dollar. After putting in a sizable gain the week prior, the greenback continued to advance over the past five sessions, and the trade-weighted U.S. Dollar Index added 0.79 percent to trade at 75.33. Since bottoming below 73 a couple weeks ago, the buck is up about 3.3 percent.   

That’s not an enormous move, but when so much speculative length is tied up in bullish commodity positions, any catalyst, no matter how small, can cause a stampede. That’s what we saw last week. This week, the response to the dollar’s rise was far more muted, given that so many investors and traders have already sold.   

US Dollar Index   

Sovereign Debt   

The U.S. dollar’s recent strength relates closely to renewed sovereign debt woes in Europe, specifically fears related to Greece. Thus, while this past week we saw most yield spreads versus benchmark German 10-year bonds decline, those for Greece remained elevated, as speculation mounts that the country will need yet another bailout from the EU and IMF to close its budget gap.   

Yield spreads for Portugal, Italy, Ireland, Greece and Spain moved to 5.86 percent, 1.47 percent, 7.29 percent, 12.5 percent and 2.13 percent, respectively. Those are all up from 6.57 percent, 1.57 percent, 7.54 percent, 12.61 percent and 2.22 percent a week ago.   

EU and IMF officials will be working vigorously to find a solution to the situation in Greece. Earlier, there had been speculation that the country could seek to restructure its debt, meaning a haircut for bondholders. Analysts warn that such a scenario could send ripples throughout the European sovereign debt market, leading to severe repercussions for weaker members of the EU. Because of this, the likelihood of such a restructuring is low—for now.   

PIIGs Yield Spreads   


The past seven days offered plenty of inflation data for markets to digest. At the forefront was the Consumer Price Index for the United States, which rose by 3.2 percent year-over-year in April, up from 2.7 percent in March, and the highest level since October of 2008. Core CPI rose by a much more modest 1.3 percent, slightly above the 1.2 percent of the prior month, and the highest since February, 2010. The muted core figure and the recent drop in commodity prices suggest that the Federal Reserve will be in no rush to tighten monetary policy anytime soon.   

Euro Zone PPI   


Turning to China, we saw the country’s consumer price index rise by 5.3 percent year-over-year in April, just a hair below the 5.4 percent of March, which itself was the highest level since July of 2008. Shortly after the release of the figure, the People’s Bank of China raised bank reserve requirements50 basis points to 21 percent—a record high—as the central bank actively attempts to cool inflation that has been running well ahead of its 4 percent target.   


Finally, eurozone consumer price index figures showed that inflation rose by 2.8 percent year-over-year in April. This matched a preliminary estimate that we saw a couple weeks ago, so it wasn’t a surprise. Nevertheless, that headline figure is the highest since October 2008. Core CPI rose by a much more modest 1.6 percent, the highest since April 2009.   


Geopolitical concerns have remained off the radar of traders for the past few weeks, as the Middle East democracy movement stalls. We still see a stalemate in Libya and relatively contained situations in Syria and Yemen. For this and other reasons, crude oil prices have fallen back, and that has in turn reduced the appeal of precious metals as an inflation hedge. Importantly, the situation in the Middle East and North Africa is not resolved by any stretch of the imagination.   

Related Tickers:  SPDR Gold Shares Trust (NYSE:GLD), iShares COMEX Gold Trust (NYSE:IAU), Market Vectors Gold Miners ETF (NYSE:GDX), iShares Silver Trust (NYSE:SLV), ProShares Ultra Silver (NYSE:AGQ), ProShares UltraShort Silver ETF (NYSE:ZSL), ETFS Physical Platinum Shares (NYSE:PPLT), ETFS Physical Palladium Shares (NYSE:PALL). 

Written by Sumit Roy From Hard Assets Investor (HAI) is a research-oriented Web site devoted to sharing ideas about hard assets investing. The site has been developed as an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures and gold (the three major components of the hard assets marketplace). The site will focus on hard assets investing without endorsing or recommending any particular investment product.   

HARDASSETSINVESTOR.comThis article is being distributed courtesy of Copyright All Rights Reserved.

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