METALS & BONDS
Aksel Kibar
29 May 2009
GOLD/SILVER
Created in MetaStock from Equis International
The chart above analyzes the relative performance between Gold and Silver between 1800 and 2009. The price fluctuations during more than 2 centuries show that, the economy went through cycles of 3+/- decades. 1870-1902 was an outperforming period for Gold. Between 1902 and 1919, the relative performance favored Silver. 1919-1941 and 1967-1990 were also outperforming periods for Gold. 1750-1870 period is known as "The crisis of silver currency" during which Western Europe and United States suffered a massive shortage of silver coinage. This forced the governments and the public to demand more gold. 1901-1932 is known as "The crisis of the gold standard". During this period, demand increased for gold. Price declines in goods and depressionary effects pushed governments to abandon the gold standard. U.S. Raised the official price of gold from $20 to $35. 1946-1971 period is known as the "Post-war international gold standard." After the Second World War many countries fixed their exchange rates relative to U.S. Dollar. This was followed by an inflationary period and the gold price surged from $35 to $850 in less than a decade. Since 1990, Silver has been outperforming Gold. However, unlike the previous Gold/Silver outperformance underperformance cycles, 1990-2009 was not clearly dominated by any of the metals. During the last 19 years we have seen two low levels in 1997 and 2006 and a high level in 2008. If the relative performance chart breaks above the high levels seen in 1941 and 1990, this will be followed by a massive outperformance in Gold. There could be several reasons for that. One of them might be the collapse of the paper currencies. On the other hand if the relative performance ratio breaks below the low levels of 1997 and 2006 this might be followed by a massive outperformance in Silver.
COPPER
Created in MetaStock from Equis International
Base metals include lead, iron, copper, tin and zinc. The demand for base metals is usually a good indication of increased or decreased economic activity. Copper is one of the industrial metals where demand and supply is dependent on the economic cycles. The use of copper in different fields dates back to 1500s. From about 1560 to about 1755, thin sheets of copper were commonly used as canvas for paintings. In the early 1800s, it was discovered that copper wire could be used as a conductor. Copper is used in piping, electronics, architecture, household products, coinage and in biomedical and chemical applications. The top mine producers of copper are Chile, USA, Indonesia and Peru.
May 22 (Bloomberg) - China, the world's biggest metal consumer, increased imports of copper and aluminum to a record in April as buyers replenished stockpiles needed for the country's 4 trillion Yuan ($586 billion) stimulus program. Inbound shipments of refined copper advanced 7 percent from the previous month to 317,947 metric tons and were more than double the same month last year, final customs data showed today. Imports of primary aluminum surged to 362,400 tons, about four times the volume in March.
The chart above analyzes the copper prices for the past 5 years. After its strong rally in 2005, Copper entered into a sideways movement between 420 and 240. From 2006 to mid-2008 Copper price consolidated in a wide range. In September 2008, the price broke down the support at 240 level and sold off sharply towards 130 level. ADIC's TECH TALK analyzed Copper in January and said: "We reached an important support zone between 130 and 110. We could expect prices to stabilize and rebound from the extreme lows." Since January, Copper had a strong rebound and formed a short/intermediate term uptrend. The price is moving in the parallel trend channel. In the short term copper is in a consolidation period. The short term resistance is at 218 and the support is at 200. A break above the 218 level will push the prices towards 240. A break below the 200 level will be bearish for copper in the short/intermediate term.
10 YEAR U.S. TREASURY NOTE
Created in MetaStock from Equis International
The chart above is the historical prices of the 10 Year U.S. Treasury Note between 1985 and 2008. ADIC's TECH TALK analyzed the 10 Year U.S. Treasuries in the previous issues. In December 2008 the report drew attention to the long term resistance and said: "The 10 Year U.S. Treasury Note's cyclical behavior in the parallel trend channel resulted in several tests of the upper boundary (resistance) and the lower boundary (support). In 2007, the 10 Year Note rebounded from the support level around 105 levels and rallied towards 125-130 range. 125-130 range is the upper boundary of the parallel trend channel. We are now very close to an important resistance in the 10 Year U.S. Treasury Notes." The U.S. Treasuries found resistance at 128 levels in December and declined towards 120 levels in the last 5 months. If we analyze the previous cyclical short/intermediate term trends we can see that every intermediate term uptrend was eventually followed by an intermediate term counter trend move. However, the magnitude of each counter trend move was different. In 1987, 1994 and 1999 the corrections were sharp and fast, retracing the previous intermediate term uptrends in a shorter time period. The correction in 2004 was a sideways movement with a slight downward slope and it took more time to retrace the previous intermediate term uptrend.
ADIC's TECH TALK May 17th issue analyzed the treasuries and added: "We know that the 10 Year U.S. Treasuries found resistance at 128 levels and the short term trend is downwards. However, we still need to see the previous uptrend to reverse. The lower boundary (support) of the uptrend is at 118-120 range." In the last two weeks treasuries declined towards the support at 118-120 and yesterday the price tested the lower boundary of the uptrend. The question is: Are we going to see a rebound from these critical levels? In other words, is the 10 year note going to break down the lower boundary of the intermediate term uptrend like the way it did in 1987, 1994 and 1999 or is it going to rebound from these levels and have a similar technical action like 2004?
Aksel Kibar
Assistant Vice President/Portfolio Management
Abu Dhabi Investment Company
www.adic.ae
Disclaimer: Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. Any and all ideas, opinions, forecasts, market analysis or market data, expressed or implied herein, are for informational purposes only and should not be construed as trading recommendations to invest, trade, buy or sell securities and or speculate in any specific futures contract, option or any other market. Any investments, trades, and or speculations made in light of the ideas, opinions, and or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The market data contained herein is believed to be reliable, but has not been independently verified. Accordingly, such data cannot be guaranteed as to reliability, accuracy, or completeness, and as such is subject to change without notice. In no event will ADIC or any of its employees be liable for any information contained herein. Data Source: Reuters, Investopedia.
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