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Seasonality of Metals Prices

Jeffrey Christian
July 28, 2021
Video Transcript

Jeffrey Christian: Hello! It’s Jeffrey Christian of CPM Group. Coming to you from Monex, it’s the 21st of July. I want to talk about platinum and palladium, also some words on gold and silver for the second half of this year, and seasonality in metals prices.

Before I start, let me tell you an anecdote about Bernard Baruch who was one of my idols, even as a young boy, much less through my life. People ask Bernard Baruch once how he made his money and he said, “I buy straw hats in September and sell them in May.” What he was referring to was the seasonality of the demand and supply of straw hats. In September at the end of Summer, no one wanted straw hats. He would buy them on the cheap and in May everybody wanted straw hats for the beginning of the Summer and he would sell them at a premium. Seasonality is a topic that’s come up. I’ve heard some strange misrepresentations of seasonality in precious metals prices in the last few weeks. So, I want to sort of clarify that.

First, let me talk a little bit about gold and silver and platinum and palladium in the second half of this year. If you look at the first half of this year, platinum and palladium outperform gold and silver. They all did very well at the beginning of the year, January, February, and since that time platinum and palladium have held their value better than gold and silver. Going forward, looking at gold specifically. We had thought that the price could peak around $1,825 in late July, early August. We now think that it could go a little bit higher, maybe as high as $1,840, come off a little bit in August and September, and then show some seasonal strength in September and the fourth quarter. I wouldn’t be surprised to see the price trading say between $1,800 on the low end and maybe as high as $1,850 on the high end—not a runaway, but some strength there. On silver, we are saying that $27.50 is very strong overhead resistance on a technical basis right now. A break above that is possible in the next few weeks and I wouldn’t be surprised to see it spike to $28.50. Beyond that, we think the price comes down, but basically we’re looking at silver trading between say $25.00 on the low end and $29.00 on the high end, with the potential for a brief spike below that or above that, depending on what’s going on in the markets and the global economy.

Now, a lot of people have been talking about how gold and silver prices are low and they’re not responding to inflation and we disagree with that. First off, gold and silver prices are not low. Put them into a historical perspective of even just two or three years ago and gold and silver prices are very high. They rose sharply in July of 2020. They’ve come off and they’ve showed some strength on a mixed basis in the first half of this year, but they’re actually relatively high. To some extent, gold and silver rose earlier last year in line with inflation expectations. Now, inflation is catching up with market expectations to some extent and to gold and silver. Last year, at this time, when the gold prices were rising strongly and silver prices were rising strongly, you had this massive amount of government expenditure, fiscal and monetary stimulus to help people during the pandemic in the global economic lockdown, that fostered a lot of expectations of higher inflation, and that was reflected in buying of gold and silver, which drove the prices higher. The inflation didn’t come along for twelve months. Now, we’re starting to see some higher inflation, about 5% on a core inflation basis in May, a lot of its transitory, really is. Some of it is more permanent and we’ll find out over the next 6 to 9 months what portions are permanent and what portions are transitory, but I think that inflation is catching up with gold and silver, and it’s not that gold and silver are lagging inflation.

Let me talk a little bit about seasonality before I get into platinum and palladium. There’s a seasonal pattern in prices and gold, the weakest month for gold is July, the weakest month for silver is July or August. Platinum and palladium tend to be weak at this period of time and then they show a little bit more weakness in October. It’s based on trends in supply historically, but more importantly on fabrication and investment demand. During the Summer months, July and August, a lot of investors go away on vacation and investment demand for gold and silver tends to fall. Fabricators also tend to go on vacation on a rolling basis and they’ll shut down their operations. In the platinum and palladium industry, where the auto industry accounts for the largest amount of fabrication demand for platinum and palladium, they tend to cut-back, go on vacation, re-tool their factories for the next coming modeling year, which they roll out in September and October, traditionally, that’s changed somewhat in the auto industry, but there are seasonal patterns in fabrication demand and in investment demand behind that weakness. That weakness is a representation of the lack of demand for straw hats. So, if you’re seeing weaker prices for gold, silver, platinum, palladium, July, August, September, that’s an opportunity for longer-term investors to buy at a seasonal or a cyclical low. Now, I will say this, seasonal patterns do work, they do exist, but they get overridden sometimes by event driven price changes. We saw that in July of 2019 and again in July of 2020, where specific events caused investors to load up on gold and silver in those two months overriding the seasonal weakness that you would normally expect in July—but the seasonality does exist and it’s a seasonal weakness more than a seasonal strength.

That’s all for this month. I hope you enjoy it and we’ll talk to you in August.

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