“Dear David, it has been a long time since my last mail but I keep following your useful, wise and sharp advice every day. I am intrigued about silver. Gold and other PMs have shown a constructive pattern in the last months but silver keeps basing and ranging, many times with low volume. Do you have a view about it? I always remember the high-beta-gold feature of silver, but it has been very lazy up to now. Thank you very much for your thoughts. Looking forward to visiting London for the next RWC in 2015. Best wishes for you and the team,”

David Fuller's view

Thank you for your thoughtful email, and yes, the Rugby World Cup in 2015 will be incredibly exciting, although I prefer to watch it on TV for the close-ups, replays and analysis.

 Thanks also for an email on PMs – a subject certain to be of interest to a number of other subscribers.  My biggest concern regarding gold and silver remains the time factor.  After a decade to the upside, a three year consolidation and support building process is not proportionally that lengthy.  Silver is high-beta gold and its current underperformance confirms that bullish interest is not yet strong.  However, it is less bearish than it was, so the directional shift from net bearish to net bullish is gradually occurring.  Moreover, gold has had a lot of competition in recent years, from bond markets which have yet to lose form and stock markets which have been increasingly in form since 2009. 

The best lead indicator in this sector is currently palladium, followed by platinum.  This is due to supply concerns.  Palladium is mainly produced by Russia, so its price can range higher until Putin decides to sell.  He definitely will sell because with a sanctions war on he will certainly need the money.  However, whether he sells aggressively or incrementally, probably next year, remains to be seen.  Meanwhile, higher reactions lows tell us that demand still has the upper hand.  Platinum is produced mainly by South Africa and Russia.  Gradually rising lows since late last year show that demand currently has marginally the upper hand.  Gold needs a sustained push above $1400 to generate more interest.  I think this will happen but we may have to be patient for a while longer.  Silver is arguably cheap but needs to break the sequence of lower rally highs to indicate that demand is regaining the upper hand. 

Seasonally, 4Q and 1Q of the year are usually more favourable for precious metals demand, including from China and India.  Tactically, I think small 5% hedge longs in PMs can be justified by investors.  Traders should adopt a buy-low-sell-high approach in terms of the small rallies and setbacks, until we see clear evidence that stronger demand has returned.