A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3068
(November 18, 1999) METALS: PRECIOUS METALS--The spot platinum market has become extremely tight lately, with cash prices now being quoted in the 450-455 range. One-month lease rates have also moved back above 55%. Moreover, spillover strength from the market prices boosted palladium values to record highs last week. The absence of Russian platinum exports is commonly cited as the cause of the apparent lack of metal. Russian export sources complain about regulations barring most organizations from selling platinum on the international market, and about the 5% export tax recently extended through April. We view the dispute as a struggle over who controls the Motherland's precious metal exports and the money thereby generated. Regardless of the outcome, market observers don't expect Russian platinum exports before January 1.
Yen Price Of Platinum
We are rather surprised at the lack of attention being paid to the surging Japanese economy and its impact on platinum prices. We have previously noted the strong positive relationship between Japan's leading economic indicators and platinum values. We have also observed that the rising yen has sharply reduced the price of platinum for Japanese consumers and investors. The chart illustrates this point, showing third-quarter platinum prices had reached their lowest levels in terms of the yen since late 1995. In fact, platinum still looks cheap when compared to 1997-98 values. We remain bullish toward platinum futures, especially with the contracts trading $20 or more under the spot market. However, we would prefer to buy on setbacks rather than jumping in at recent highs.
Gold futures have recently displayed a tendency to trade opposite the U.S. stock and bond markets, particularly in response to domestic economic data. For example, the November 5 employment report showed the U.S. economy was still adding jobs, but was generating little inflationary pressure on wage rates. The news boosted the S&P 500 to its highest level since late August, while December bond futures hit six-week highs on the news. Conversely, December gold futures tested their recent lows, then rebounded modestly. We expect this pattern to continue during the weeks ahead.
One exception to that rule could arise on Monday, November 29, when the Bank of England will hold its third gold bullion auction (of 25 tonnes). Traders expect prices to perform well in the wake of the auction. We tend to agree, thinking gold miners were heartily encouraged by the results of the September 21 auction, in which aggressive bidding from Gold Fields LTD of South Africa enhanced the results. We also expect the auction to increase short-term volatility, so we do not favor holding speculative positions through Thanksgiving weekend.
Silver continues to suffer from a dearth of fundamental news. As a result, technical factors are largely determining price direction. We see little advantage to trading silver under these circumstances.
Dan Vaught