Speculators Still Dominate the Gold and Commodities Markets

The news over the weekend was that the IMF is going to sell 403.3 metric tons of gold. Wow! 400 tons of gold!

Except that this is old news. The IMF has been making a lot of noise about selling 403.3 metric tons of gold for nearly a year now (some say for over a decade!). So what exactly is new? They never sold an ounce of gold. I will believe the IMF gold sell when it happens.

But such an expired old joke was enough to knock gold's price down $25 on Monday, or -2.8%. Silver was down even more, -5.0%. Was the IMF going to sell silver as well?

There must be too many speculators and not enough serious investors in gold and silver. If you are serious about buying gold and silver as safe haven assets, then you should buy the physical metal, take delivery and hold for long term as an insurance for your financial security. Monday's gold/silver plummet proves that speculators still dominate the gold market; sentiments, rather than fundamentals, are still the driving force behind gold price. Even James Sinclair, the most outspoken gold bug, got so frustrated that he almost gave up attempts to persuade people to demand gold delivery from the COMEX.

Meanwhile, London based ETF Securities had just made US filings for platinum and palladium trusts. Read the SEC filings for platinum and palladium. This is the first step in introducing the ETFs for physical platinum and palladium into the US market. This is extremely important and very bullish for platinum and palladium, as demand from US investors could absorb a considerable amount of available PGM metals, and could trigger panic hoarding by industry users as they fear a looming shortage due to booming investment demand.

Jim Rogers summed up successful investment in three words: Skeptics, Curiosity and Persistence. My favorite precious metal is palladium as my study convinced me, this metal has the most bullish supply/demand fundamentals among all precious metals. Norilsk Nickel (NILSY.PK) in Russia supplies 45% of the world's palladium. So every day I watch closely for any news coming from Norilsk Nickel in Russia.

As I watched, the news from Russia keeps getting better for the palladium bull story:

• Russia could suspend platinum/palladium export due to bureaucratic confusion. The confusion was due to conflicting laws and presidential decrees. The unspoken truth is if the Russians have a high incentive to export, the bureaucracy can be sorted out quickly. But as current prices of palladium and platinum are so low, there is absolutely no incentive for the Russians to speed up the exportation of the precious metals. Logically, they would rather drag their feet on the issue, and watch the metal prices skyrocket in an ensuring shortage. Then they can resume the exportation at much higher prices.

• Norilsk Nickel is in bad financial shape due to low nickel and copper prices. If they run out of cash, they may have to shut down mining operations. This could send palladium price skyrocketing due to the supply disruption. Norilsk lost a total of 90.15 billion roubles in the second half of 2008, or US$2.65B. They wasted US$2B in cash on a controversial stock buyback program just a few months ago. And now they are re-selling the buyback shares for a mere US$350M cash. Even worse, they can't find a buyer. Things at Norilsk got so bad that the Russian Government launched an investigation into their finances.

In a previous article I discussed why fundamentals of palladium are getting better. The recent scientific break through in Low Energy Nuclear Reaction (LENR) could attract more investment interest in palladium as it will become a critical strategic metal for the future energy needs.

Besides buying physical palladium, you can buy shares of two mining stocks: Stillwater Mining(SWC) and North American Palladium (PAL). People have complained about the difficulty in buying and selling physical palladium, as the premium is too high and the buy/sell spread is too wide. Complain no more, folks! You will soon be able to directly buy and sell shares in a palladium ETF, just like GLD for gold and SLV for silver.

I am not a big fan of any ETF. Why invest in physical precious metals, if the metals are not in your direct control, and free of counter-party risks? Many people questioned whether SLV really holds the silver. But to their credit, SLV
has been tracking the silver spot price rather precisely so far. So long as SLV continues to track the silver spot price, you may feel safe to hold SLV positions. But just don't hold for too long. Holding physical metals is still the safest investment, when there is so much mistrust in the system.

As for other commodities, crude oil's price has already bottomed as OPEC's production cut is beginning to take effect. You may buy some US Oil Fund, (USO) on dips. Meanwhile, I believe it is time to massively load up on the US Natural Gas Fund, (UNG), as there is very little further downside. Natural gas producers are cutting production aggressively at current price levels. From an energy point of view, current natural gas price is equivalent to roughly $23 per barrel oil. That's rather cheap compared to the price of crude oil. Unfortunately, for oil and gas, you have to buy the ETFs as it is impossible to take physical delivery of these two commoditites.

Full Disclosure: The author is heavily invested in SWC and PAL, and holds positions in silver stocks SSRI and PAAS. I also hold positions in AAUK, USO
and UNG. I am also heavily invested in shipping stocks EXM, EGLE, DRYS, TBSI, and GNK.

Comments

[tema:]

Very good article, Thanks!

Apr 09 07:37 AM

[john s. gordon:]

in normal economic conditions, largest user of Pd is catalytic converters for automobiles. when nobody is building any automobiles you would expect Pd demand to drop. if russian government is expecting a demand increase they may have to wait for a while.
> jack

Apr 09 08:37 AM

[capt Brian:]

THIS guy seems to be having his coffee earlier than most. Good article.

Apr 09 09:18 AM

[physicist:]

Mark, creating an ETF for palladium may not be positive news for the metal since lots of virtual metals will be created and made available for investors. The actual demand on the market therefore will not be increased. ETF actually provides a good means to suppress the price of the metal. Look at how ETFs of gold and silver function as a price suppressor.

Apr 09 09:23 AM

[GMiki1:]

More cars sold in China now than the U.S. (Hello, oil.) Actually, this time I agree with Mark. Palladium/platinum, yes. But be aware of the juniors as well. ANO is a strong platinum junior operating in South Africa. UMJMF.PK operates here and is forging ahead though the stock has been beaten down. PAWEF.OB as well--Pacific Northwest.

Apr 09 11:54 AM

[Jake2:]

Author has been known to shoot from the hip. Due diligence is the word.

Apr 09 11:57 AM

[Conan the B...:]

I own PAL, Big deal.

Mr. Anthony: don't bother with your revelation on OMG or JRCC, thats just two of how many positional changes over the last 12 months which haven't even been commented on. You recommended JRCC? if its there, I'll find it. I am very, very good at tracking down info.

I'll go back in time and fetch them for you.

Apr 09 12:15 PM

[Conan the B...:]

Here we are, you can look at your Full Disclosures for a few articles.

Do you happen to see any discrepancies? I sure as Heck can. Do you even know the definition of "Full Disclosure"? You agreed to this before being allowed to write you First SA Article.

Any vague recollection? You do not get to choose when you will provide Full Disclosure. It doesn't matter what your Article is about either.

Full Disclosure lets investors know whether a rcommended investment has been sold, It is recommended when the Author says he Owns it.

What part of Full Disclosure don't you understand?

Check on it.

Apr 09 01:13 PM

[kohalakid:]

physicist...

I'm not sure how you conclude that an ETF creates "virtual metals".
GLD and SLV both issue shares against physical metal deposited in approved storage facilities. How is that "virtual metal"?? The metal does exist and in a form that's easy for investors top buy and sell. It helps create demand..not industrial demand..but investor demand.
Is that bad??

Apr 09 01:25 PM

[dionysos:]

Good article on fundamentals of palladium and platinum. I just follow the charts and PAL SWC are breaking out of a base. Good enough for me to buy as a trade with a stop under recent support. The white metals including silver are a better play right now than gold because they will be needed to feed the reflation that must come if we are to avoid major deflation/depression.

Apr 09 02:01 PM

[physicist:]

It is not bad if every ETF share is backed by physical metal bars. However, as an investor, you cannot view or touch these bars and it creates the possibility for fraud. Just look at the case for silver, many claimed ETF shares are just suspicious and a "fractional reserve" system has been used to attract money from investors while not creating any real demand on physical metals. Check out the following link:

news.silverseek.com/Go...

You will know how serious the problem is, especially for silver market. Since ETF shares created out thin air will just add virtual supplies to the market, which will suppress the price down.


On Apr 09 01:25 PM kohalakid wrote:

> physicist...
>
> I'm not sure how you conclude that an ETF creates "virtual metals".
>
> GLD and SLV both issue shares against physical metal deposited in
> approved storage facilities. How is that "virtual metal"?? The metal
> does exist and in a form that's easy for investors top buy and sell.
> It helps create demand..not industrial demand..but investor demand.
>
> Is that bad??

Apr 09 02:58 PM

[ValueInvestor:]

So one guy has an opinion and it completely changes your outlook?

Looking at your website you look like some piker trying to take others money. You need $120k to enter your program? What a joke. You even put pictures of yourself on the main page in front of nice cars, counting money, brokerage statements, etc. How unprofessional for someone calling them self one.


On Apr 09 09:49 AM MADE IN SOMALIA wrote:

> I was bullish on Palladium before this call, now I am short.
> If people like you are bullish, God forbid.

Apr 09 04:03 PM

[Conan the B...:]

Mr. Anthony is no better or worse than a lot of Authors who signed up to write Articles but "forgot" what their Agreements entailed later on.

As a matter of fact, I've defended him in the past.

As far as Palladium is concerned. Tata Motors, $2,500 car, what's it going to use?

Platinum at $1200 or Palladium at $240.

My guess is that it will be the latter until parity is reached. Palladium was the converter of choice in the 70's before the switch to Platinum.

Long PAL.

Apr 09 04:30 PM

[Conan the B...:]

physicist: how are your muons doing?

GATA/Silverseek.

Jake Towne is a proponent, check out his articles on SeekingAlpha.

Apr 09 11:46 PM

[physicist:]

Conan the Barbarian, the truth is out there. Jake Towne cannot change it.



On Apr 09 11:46 PM Conan the Barbarian wrote:

> physicist: how are your muons doing?
>
> GATA/Silverseek.
>
> Jake Towne is a proponent, check out his articles on SeekingAlpha.

Apr 10 08:11 AM

[Conan the B...:]

GATA/Silverseek=Jake Towne.

Jake is seeking the truth, can you help him?

Apr 10 09:17 AM

[mc_squared:]

Mark, I wonder what happened to your tellerium ingots? You were very fond of them at some stage.

Apr 23 02:31 AM

[Mark Anthony:]

Mc_Squared:

I still hold a couple hundred kilograms of tellurium for long term investment. I intend to hold them till they are value enough to pay off the mortgage of my house. Right now, like all commodities, tellurium has suffer some set back. But it is actually holding up way much better than other commodities. New technology is quietly using up more and more tellurium, notably the Blu-Ray DVD and the new phase change computer memory chips.

I take pride being one of the world's first few tellurium investors. Although I am much more comfortable holding a piece of palladium, rather than tellurium, in my hands.

On Apr 23 02:31 AM mc_squared wrote:

> Mark, I wonder what happened to your tellerium ingots? You were very
> fond of them at some stage.

May 20 02:34 PM

[yellowhoard:]

Bought some tellurium at 57 cents per gram yesterday. I like all metals and decided to buy a few thousand grams based on your recommendation.


On May 20 02:34 PM Mark Anthony wrote:

> Mc_Squared:
>
> I still hold a couple hundred kilograms of tellurium for long term
> investment. I intend to hold them till they are value enough to pay
> off the mortgage of my house. Right now, like all commodities, tellurium
> has suffer some set back. But it is actually holding up way much
> better than other commodities. New technology is quietly using up
> more and more tellurium, notably the Blu-Ray DVD and the new phase
> change computer memory chips.
>
> I take pride being one of the world's first few tellurium investors.
> Although I am much more comfortable holding a piece of palladium,
> rather than tellurium, in my hands.
>
> On Apr 23 02:31 AM mc_squared wrote:

May 20 03:09 PM

[Whippet:]

YH- where do you buy this stuff? All I can find are Chinese industrial suppliers and some mineral collectible trinkets on ebay. I would also like to join the Garlic Breath Cult.


On May 20 03:09 PM yellowhoard wrote:

> Bought some tellurium at 57 cents per gram yesterday. I like all
> metals and decided to buy a few thousand grams based on your recommendation.
>

May 20 03:46 PM