Weekly Market Report 06/23/14

This Week’s Headlines:

Gold
What’s driving the Gold & Silver prices higher?
Silver
Recommended Investment Commitment and Diversification

GOLD

Gold continued to move higher last week, up $42.50 per ounce, and up $70 per ounce (5.6%) from the beginning of June. What’s more important is that Gold broke through the key $1,300 per ounce resistance level and kept on going. Breaking out above the $1,300 per ounce level resulted in changing the professional commodity trader’s recent strategy to short sell rallies when Gold approached the $1,300 per ounce level. Now, the $1,300 per ounce level should act as support, and Gold should trade between $1,300 and $1,332 per ounce while building a new base. After Gold moves above the $1,332 price, its next major resistance level is $1,392 per ounce, this year’s high, which occurred on March 17th.

On Thursday, Gold increased $41 per ounce, the largest one day increase this year. That day’s trading volume on the Chicago CME Exchange (the primary exchange for U.S. commodity trading), was 237,993 hundred ounce Gold contracts for August delivery. August is the most actively traded month on the exchange and 237,993 hundred ounce Gold contracts is equal to 23,799,300 ounces of Gold, the largest amount of Gold traded on the CME this year. That quantity of Gold traded is extraordinary, given that only 87,913 contracts were traded the day before.

I can attribute 50,000 of these contracts to short covering by professional traders who quickly covered their short positions when Gold moved above the $1,300 per ounce resistance level. That leaves 100,000 contracts, or 10 million ounces of Gold, that someone decided to purchase for August delivery.

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What’s driving the Gold & Silver prices higher?

Last week’s Gold & Silver frenzy was primarily caused by a statement from the Federal Reserve Chairwoman and the military escalation in Iraq by the Sunni aided ISIS militants.

On Wednesday, the Federal Reserve Chairwoman Janet Yellen stated that U.S. interest rates will remain unchanged until the middle of next year and then will rise. Low interest rates are considered bullish for precious metals and normally weaken the value of the U.S. Dollar against the Euro and Yen.

During the past two weeks, a well-armed force of Sunni aided ISIS militants (ISIS is considered a terrorist organization by the United States) have taken control of four major cities in northwestern Iraq along the highway from Syria to Baghdad.

The Middle East has had a long history of brutality between the Sunni and Shiite sects. Many of the Sunni tribesmen are supporting the ISIS Militants’ battle against the Iraqi Shiite led army. Over the weekend there were armed conflicts between the Sunnis and Shiites on the streets of Baghdad. The U.N. refugee agency said that more than 1 million Iraqis have fled their homes because of this conflict. The U.S. has promised to deploy 300 military advisers to help the Iraqi military.

As the situation in Iraq has worsened in the past couple of weeks, the prices of oil and precious metals have moved up dramatically. Concern about an interruption in oil supplies coming out of the Middle East has resulted in a sharp increase in demand for crude oil, Gold, and Silver.

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SILVER

Many Silver investors had to be ecstatically happy last week with its 6.18% increase in just five trading days. Silver closed on Friday at $20.94 per ounce, up $1.29 for the week, and up $2.26 per ounce from the beginning of June. Last week’s price action in Silver has turned many professional commodity traders bullish on Silver. They should stop shorting Silver on rallies. In my June 16 Weekly Market Report, I stated I was looking for Silver to quickly break above the key $20 per ounce resistance level. On June 19, Silver busted through the $20 per ounce level on very heavy demand. Silver’s next resistance level is $21, then $21.60, and hopefully $22.22 per ounce, which is this year’s high, reached on February 24th, 2014. I believe that we should see these levels tested within the next few months.

With Silver up 6.18% last week and Gold up 3.34%, the Silver/Gold ratio has moved lower, and is currently at 62.85 to one.

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Recommended Investment Commitment and Diversification:

Precious Metal commitment: Minimum of 40% of investment capital

Diversification:  Gold 50%, Silver 45%, Platinum & Palladium 5%

Diversification includes 50% in long term investment quality rare coins and 50% short term bullion products

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