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(April 30, 1997) METALS: Little interest here by investors but there is bullish divergence between silver prices on the stochastic indicator and a drop off in open interest, suggesting silver is on bottom. In this light, it's interesting that consumption levels in U.S. silver are expected to reach a record. Indian demand for silver is up and COMEX warehouse stocks are half what they were in 1994. June gold too is attempting to hold $340 support. A quick washout below $340 followed by a reversal and strong close above $345 will be bullish. Palladium which has been the leader in this complex, is toppy, and platinum has turned negative/neutral. The industrial metals are toppy and thus a reversal down by copper could be upcoming... The trading public is too bearish on gold, silver and platinum and too bullish on copper... South African gold production continues to decline. Gold consumption in the jewelry industry is exceeding production. Currency instability in Europe is leading to some flight into precious metals. Physical gold has been in relatively tight supply with Far East buying coming in on weakness. Inflation could help gold. High real U.S. interest rates, strength in the U.S. Dollar, rallying stocks, and the Bre-X scandal have hurt gold. News that the Swiss National Bank may reduce its gold holdings by 25%-40% and that more European countries may sell gold to meet the entry requirements of the EMU have pressured gold... Franco-Nevada and Euro-Nevada remain the premier gold stocks. Rumors that Russia plans to sell its gold stored in Swiss banks and replace it with platinum and palladium have hit the yellow metal. Russian platinum production is uncertain. Palladium consumption is outpaceing Russian and South African production. Russia produces 50% of the world's palladium... LME copper inventories have declined since February, down 30%, while demand is increasing in developing countries and the developed world. China still needs copper. Labor problems at mines globally have supported copper. But there is bearish divergence between lower highs on the weekly bar chart in copper and effectively a top on the daily bar chart. An upcoming copper correction?
RECOMMENDATION"Investors who purchased December 1997 gold and silver call options"hold. Only core holdings of gold and silver coins and gold stocks should be accumulated on weakness and held. Futures investors may purchase gold on a strong close above $355 and again above $360 and $365 with a $349 open protective stop.
Futures investors profitably long June palladium take profits.
Futures investors may sell July copper short on a stop at $1.082 with $1.1160 open protective stop, holding for a test of $1.00. v Futures investors may buy December silver on a stop and on a strong close above $4.90 and above $5.00 with $4.74 open protective stops.
R.E. McMaster, Jr.
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