Precious Metals Report
Leonard
Kaplan
Prospector Asset Management
November 24, 2004
Gold is still not in its
"second wave"
CLOSES |
INDICATIVE
LEASE RATES
Based on 30 day maturities |
DEC GOLD |
$447.00 |
GOLD |
.00/.50% |
DEC
SILVER |
$7.60 |
SILVER |
.50/2.00% |
JAN PLAT |
$859.70 |
PLATINUM |
1.00/4.00% |
DEC PALL |
$220.30
|
. |
. |
GENERAL COMMENTS:
As the white metals suffered a bit last week, the gold market
continued its sharp rally as expected. This market is still almost
entirely influenced by the US Dollar, which continues its death
spiral, plumbing new lows virtually every day. While the US administration
publicly maintains that its "strong Dollar" is unwavering,
the financial markets remain unconvinced. Comments by Dr. Alan
Greenspan on Friday only emboldened the USD bears when he was
quoted as saying, "it seems persuasive that, given the size
of the US current account deficit, a diminished appetite for
adding to dollar balances must occur at some point". Gold
was up $8.70 for the week, pushing into new 16 year highs.
While the gold price slavishly followed the Dollar, the white
metals suffered a bit coming under some long liquidation. Silver
was down fractionally while platinum, maintaining its reputation
for capricious volatility, fell by $14.50 as bearish fundamental
news was released by Johnson Matthey. Palladium was totally ignored
as prices were just fractionally lower.
The most significant news of the week for the gold market was
the wild success (so far) of the new Exchange Traded Fund for
gold. After trading about 6 million on Thursday, we have seen
this fund trade about 12 million shares (!!) per day amidst superb
liquidity. While its sisters in London and Australia could never
measure up to expectations, the US version is certainly going
gangbusters. It is still too early to qualify this fund as the
panacea that the World Gold Council and gold bugs fervently hoped
for, but so far it is most impressive.
However, there is a fly in the ointment that I have not seen
mentioned in any other newsletter, although it is clearly delineated
in the prospectus. Please understand that gold is considered
a "collectible" by the IRS, and as such, all profits
are taxed at a different rate than other investment vehicles.
Two quotes from the prospectus will verify this status.
**(from page 67) Shareholders generally will be treated, for
US Federal income tax purposes, as if they owned a pro rata share
of the underlying assets (emphasis added) held in the Trust.
**(from page 69) Under current law, gains recognized by individuals
from the sale of "collectibles", including gold bullion,
held for more than one year are taxed at a maximum rate of 28%,
rather than the 15% applicable to most other long-term capital
gains.
I remain very hesitant to discuss tax treatments as I am most
unschooled in these matters BUT it appears to me that the new
gold ETF carries a greater burden of taxation than other investment
vehicles such as futures. I STRONGLY encourage you to consult
your tax professional on this matter. To compare tax rates between
the ETF and the futures market, at the highest tax rates:
ETF FUTURES
Short term (less than a year) 35% 23%
Long Term (over a year) 28% 23%
As noted, the difference in taxation between these two investment
vehicles is rather large, especially in all transactions under
a year in duration. In other words, the average retail investor
would pay 1.5 times the tax on profits earned in ETF than in
the futures markets on short term trading, and about 20% more
tax on those trades over a year. Again, while I have taken pains
to verify this data, I ask you to consult your tax professional.
While the EFT offers fabulous liquidity, and enormous ease of
transaction for many stock market investors, it is not the most
effective nor efficient method of trading gold. It is my belief
that the volume will ALWAYS seek the most beneficial venue, and
as such, investors in the new fund must determine if the ease
of transaction is worth the additional tax burden. While the
new ETF is very welcome to the market, energizing gold bulls,
it appears NOT to be a better mousetrap.
Last week, the French National Bank announced that it will sell
500-600 tons of gold over the next 5 years to reduce the state's
large budget deficit. As the market completely and totally expected
such news, it was largely ignored as the sales will take place
within the newly-signed Washington Accord. In the later
part of the week, the German National Bank stated it will decide
if it will also be a seller, and if so how many tons, by the
end of this year.
In a very bullish development, GFMS announced that producer de-hedging
(the repurchase of previously sold forward positions or the like),
continued at very high levels last reported in the second half
of 2002. This information must be taken very bullishly as producers
continue to pare back their global hedge books EVEN WITH GOLD
AT SHARPLY HIGHER PRICE LEVELS. Most analysts (including myself)
would have guessed that the current rally in gold might have
deterred such actions to some extent, but we were wrong. Also,
actual repurchases of sold forwards totaled 3.0 million ounces,
a goodly percentage of the drop of 4.6 million ounces in the
global hedge book, another very bullish data point. The global
hedge book now totals 60.4 million ounces, about 75% of one year's
total production.
While the loco London market has been on the wane in recent years
as investors/speculators turned to derivatives marketplaces,
this trend is now reversing as the precious metals find greater
foothold in both the financial press and in the psychology of
the market. In October, gold ounces transferred for the LBMA
increased by 18.5% to 14.7 million ounces daily. Silver ounces
transferred rose to 92.0 million ounces per day, a gain of 12%.
The news for platinum and palladium was none too bullish last
week, as Johnson Matthey declared that the platinum market will
grow by less than 1% and will be very close to a fundamental
equilibrium of supply and demand in 2004. There is an old saw
in the commodity business that high prices cure high prices,
and this is occurring in the platinum market as years of lofty
price levels have strongly encouraged production while discouraging
demand, especially from those "discretionary" purchases,
such as jewelry. The palladium market is set for another 1 million
ounce surplus in 2004. While knowledge of these important market
fundamentals of supply and demand are crucial to the investor
or speculator, it MUST BE considered that the actions of the
speculator may have a very outsized effect on the prices of these
metals. Both of these markets are very thin, and any interest
by speculative forces can either shoot prices sharply higher,
or sharply lower.
On to the Commitment of Traders reports, as of November 16th,
both futures and options:
Gold
Long
Speculative |
Short
Speculative |
Long
Commercial |
Short
Commercial |
203,792 |
34,000 |
134,578 |
352,142
|
+8,304 |
+1,515 |
+8,039 |
+13,346
|
Long Small
Spec |
Short Small
Spec |
. |
. |
76,524 |
28,753 |
. |
. |
+1,404 |
+2,887 |
. |
. |
As open interest burgeoned
to new all time record highs, with gold up about $4 during the
reporting period, long speculators continue to add to their already
large positions. They were joined by the long commercials, probably
jewelry concerns locking in their cost of gold in the future,
while the short commercials continue to accumulate contracts,
even as prices go higher. The ratio of long specs to short specs
is 4.43 to 1, rather high but not at the classic danger point
of 5 to 1. As noted in the last newsletter, I remain bullish
on this market but it must be noted that the gold price is only
following the demise of the USD. Any rally in that currency will
force gold lower. Gold is still not in its "second wave"
of its long term secular bull market, when it will rally against
all or most currencies. Recommendations will follow for
subscribers.
Silver
Long
Speculative |
Short
Speculative |
Long
Commercial |
Short
Commercial |
68,480 |
4,502 |
21,255 |
108,312
|
+373 |
-623 |
-700 |
+499
|
Long Small
Spec |
Short Small
Spec |
. |
. |
37,749 |
14,670 |
. |
. |
+1,204 |
+1000 |
. |
. |
Silver prices were marginally
higher during the relevant week, with open interest mostly unchanged.
There was very LITTLE change in the ownership of contracts, and
as such, it seems a bit foolhardy to make much of this data.
Long specs are a bit over 5 times the size of the short specs,
a sign that any long liquidation could force a very sharp sell
off in prices, as we have seen before many times. However, it
is more likely that silver prices will trend higher, following
gold. I remain mildly bullish but would prefer to be
long gold than silver due to the lessened risk.
GOLD RECOMMENDATIONS:
(recommendations are
available to clients and subscribers only)
SILVER RECOMMENDATIONS:
(recommendations are available to clients and subscribers
only)
PLATINUM RECOMMENDATIONS:
(recommendations are available to clients and subscribers
only)
Nov 23, 2004
Leonard
Kaplan
![Click for Evanston, IL Forecast](http://banners.wunderground.com/banner/smalltemptr/US/IL/Evanston.gif)
Evanston IL Temperature
Email this page to a friend Prospector Asset Management, and its
sister company, Prospector Metals LLC offer the following services:
- Brokerage
of commodity futures and commodity options
- Managed and
directed speculative accounts in commodity futures and options
- Brokerage
of physical precious metals
- Consulting
Services
- Daily Newsletter
and Special Reports on the Precious Metals
Prospector
Asset Management
1415 Sherman Ave. #504
Evanston, IL 60201
Ph: (847) 733-8400
Fax:(847) 733-8958
E-mail
Futures Trading
is for individuals willing to accept a higher level of risk for
the opportunity of greater returns. This information is obtained
from sources considered reliable, but its accuracy is not guaranteed
by Prospector Asset Management. The recommendations reflected
are those of Prospector Asset Mgmt. and are based upon circumstances
it believes merit such recommendations. It is possible that other
brokers or analysts may disagree with our opinions based upon
their current commodity research or the analysis of commodity
trading advisors. Expressions of opinion are subject to change
without notice. Reproduction or rebroadcast of any portion
of this information is strictly prohibited without the written
permission of Prospector Asset Mgmt.
There is a
risk of loss trading futures. You should carefully consider the
risk associated with futures trading in light of your specific
financial position. Past performance is no guarantee of future
performance.
_________________
321gold Inc Miami USA
![](../../images/home2.gif)
|