Bullish for the Short Term But Consider Gold, Platinum as Well

Excerpt from Raymond James strategist Jeffrey Saut's latest essay, published Monday (February 9th):

...[I]n last Tuesday morning’s verbal strategy comments we noted that since the inception of the S&P 500 futures contract there have been five instances when the futures slid by 2% (or more) on back-to-back days and then gapped lower by 1%+ the following session. On EVERY one of those occasions the S&P 500 (SPX/868.60) was at, or within one day, of beginning a decent rally. Further, last November we opined that at the November 20, 2008 “price low” the DJIA was 34% below its 200-day moving average [DMA] and consequently very oversold.

According to Susan Berge, of the Berge Report, that reading was greater than the momentum low occurring in October 1974 of 27%, as well as the 24% reading during the 1987 crash. Even after the rally we have experienced since the November “lows” during the recent downside re-test of those November’s “lows” the differential was still a massive 25%. Subsequently, we advised buying the exchange-traded fund [ETF] of your choice, which in our case was the recommendation of the ProShares Ultra S&P 500 (SSO) that is “geared” two-to-one on the upside. We further suggested that the more timid types might want to consider hedging these positions to minimize the downside.

Accordingly, the Dutiful Dow sprinted 141 points in Tuesday’s session, but gave back most of those gains on Wednesday’s wilt (-121). Therefore, in Thursday morning’s strategy comments, we said that if our upside rally “call” was going to play ,the equity markets would need to shake off Thursday’s worse than expected employment claims number, as well as the anticipated worse than estimated employment numbers on Friday. BINGO, for indeed the late week numbers were much worse than expected, yet the DJIA shook them off and rallied. How far the rally will carry is anyone’s guess, for while we are bullish on a short-term basis, it would take a closing price above 8375 on the DJIA to turn us merely “neutral” on an intermediate-term basis.

However, if the DJIA (8280.59) can close above its January 6, 2009 closing high of 9015.10, with a like close by the D-J Transportation Average [DJTA] (3203.70) above its 1/6/09 closing high of 3717.26, it would be a Dow Theory “buy signal” according to our interpretation of Dow Theory; and should be viewed as a pretty bullish occurrence. Moreover, as stated in previous missives, so far what we have seen is a downside non-confirmation, with the DJTA breaking below its November 2008 “low” without a similar breakdown by the DJIA; and, you should read that bullishly.

Meanwhile, there was an interesting rotation last week with the Commodity Research Bureau Index “up,” the Dollar Index “down,” bond prices “down” (read: higher interest rates), and Dr. Copper “up” nearly 11%. This action, if it continues, suggests the potential for the return of inflation and the potential for a stronger economy. If so, in addition to our recommendation on gold, participants might want to consider investments in platinum. Indeed, unlike gold, platinum is not only a precious metal, but is used heavily in industry due to its tensile strength characteristics...

Typically, platinum sells at a substantial premium to gold, but because of the collapse of the auto industry platinum is approaching parity with gold for the first time since the early / mid-1990s. Investors, therefore, might want to consider platinum in addition to their gold positions, for they will be purchasing a relatively “cheap” metal with a “call” on an auto industry rebound. Our vehicle of choice for this theme is the iPath Dow Jones AIG Platinum ETF (PGM).

Comments

[ROLEX18:]

Gald is talked too much so much thet the only way for it is down.
How can you be bullish on GC at such prices, it was wiser to be bullish when GC was 250-300$ but then on the opposite nobody was, sell the mass thinking.

Feb 10 06:29 AM

[B12B:]

"Typically, platinum sells at a substantial premium to gold, but because of the collapse of the auto industry platinum is approaching parity with gold".......
What no one seems to be alerted to is that some months ago breakthroughs in scientific manipulation of the gold atom has demonstrated it's utility as a catalyst, usable in applications now reserved for platinum exclusively.
As scientific breakthroughs typically take some time to be scaled up to industrial processes, the large effect this will have on the relationship between platinum and gold is not yet visible but is surely coming. Correspond with me @ [e-mail] if you care to.

Feb 10 08:25 AM

[yellowhoard:]

Platinum is 1/30th the availability of gold. Gotta love it. Any thoughts on palladium?

Feb 10 08:46 AM

[SW Richmond:]

PG metals are IMO industrial / military and have little if any monetary component. In a time of monetary chaos I'm sticking with monetary metals.

Feb 10 09:55 AM

[Mark Anthony:]

Yellowhoard:

You've got to LOVE palladium if you like platinum. The fundamentals of palladium supply/demand can not be more bullish. I expect this petal, currently trading less than 2/9 of gold price, should reach triple the price of gold in 2 years. Read why:

seekingalpha.com/artic...
hipping-some-recent-de...

1.Russian government stopped the traditional annual 1.5M to 2M ounces palladium stockpile sale, as their stock simply have nearly depleted. Instead they MIGHT be buying from the market to replenish their defense strategic stockpile.

2.Russia's Norilsk Nickel, supplier of 45% of the world's palladium, will report dramatically LOWER palladium production, as they seek to mine the ores that are nickel rich and palladium poor in content.

3.Dimished recycling supply, as current low palladium price provides no economic incentive for recycling.

4.South Africa supply disruption.

5.Investment demand.

For your info, annual global palladium mine production is roughly 6M (6 million) ounces a year, consumption is about 8M ounces. The supply shortfall used to be made up by Russian government stockpile sale, and recycling. Both are gone now.

Feb 11 02:41 AM

[Mark Anthony:]

The correct link to the article is here. This is a MUST READ:

seekingalpha.com/artic...

Feb 11 02:42 AM