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Metals Outlook: Cash and Futures

  • #61
  • Jun 12, 2019 11:55pm Jun 12, 2019 11:55pm
Quoting Ef5
By the way, futures have gold eventually grinding up to 1,430 anyhow: {image}
I've been following some of your posts and the level of research is impressive. I have two questions related to your chart above:

  1. Are you pointing out how much of a rise the futures market is showing? Wouldn't it be accurate to assume all precious metal would also show a significant rise as you go further out into the future. The more the metal serves as a store of value, I'd think the closer it would look to gold. So maybe the ranking would be Gold, Silver, Platinum, then Palladium? Which brings me to my next question.
  2. Would you be so kind as to post the same chart but showing Silver futures going out that far? I've been thinking of making some silver bullion purchases and on the fence. It seems like a great entry right now, but I'm not so sure about where it's going in the next few years. Most gold and silver owners that I know don't trust the government. I'm not that kind of investor. Besides the potential in the value appreciating, I like the tax benefits and the ability to buy, sell, and trade it without having to report it. I've got the CME showing me 16.28. That's about 1.40 over spot. 9% return over a four year time horizon is barely beating inflation. I guess I just answer my own question.

We must learn who is gold, and who is gold plated
EventsTrader Live All Time Return: 54.4%
  • #62
  • Jun 13, 2019 10:00am Jun 13, 2019 10:00am
Quoting auricforecas
The following reference comes to mind: "Dr. Cowans: Anesthesia's the easiest job in the world until something goes wrong. It's 99% boredom and 1% scared-shitless panic." Coma (1978)..
We used to say this when I was a cop as well. Most of the time you're going about your routine and all is good...but then...some moron decides he is going to try and shoot a cop, or defy authority.

To me the risks in trading have NOTHING on the risks I took everyday when I was a police officer. And the hours are WAY better. As is the pay.
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  • #63
  • Jun 13, 2019 11:16am Jun 13, 2019 11:16am
Quoting auricforecas
there might be just so many GOLDEN trades per year... That is why i retract if there are certain bad trades in a row or STALL, prefer not to trade...
Recently read New Market Wizards and that was my number one take a way. Many people made majority of their money on a small number of big trades, and preserved capital when they aren't winning.
If in doubt, paddle out!
  • #64
  • Edited 12:36pm Jun 13, 2019 12:24pm | Edited 12:36pm
Quoting EventsTrader
{quote} I've been following some of your posts and the level of research is impressive. I have two questions related to your chart above: Are you pointing out how much of a rise the futures market is showing? Wouldn't it be accurate to assume all precious metal would also show a significant rise as you go further out into the future. The more the metal serves as a store of value, I'd think the closer it would look to gold. So maybe the ranking would be Gold, Silver, Platinum, then Palladium? Which brings me to my next question. Would you be so kind...
Thanks ET!

1. Yes, if nothing changes spot gold should rise well above 1,400 based on futures. Technically there's an arb between GLD and futures, but the return would be too low to bother with.

In theory, I believe the reason gold is so much higher is people selling gold in the future need to be compensated for holding for the next x number of years when their money could be put to use elsewhere. Interestingly, gold's futures curve implies a gain lower than inflation exceptions. In 5 years, gold is expected to be 5.1% higher which means it should go up by ~.99% each year. 5 year inflation expectations as measured by 5y bonds - 5y tips is 1.57%. This is something I may need to study further, the spread between inflation implied by gold's futures curve and bonds could have some value.

Out of all the major metals the only one that has lower prices in the future is palladium. I'm not clear why, but that might be indicative of something.

2. No problem, here's the futures curve for silver:

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 61 KB
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #65
  • Jun 13, 2019 12:50pm Jun 13, 2019 12:50pm
Quoting Ef5
... In theory, I believe the reason gold is so much higher is people selling gold in the future need to be compensated for holding for the next x number of years when their money could be put to use elsewhere. Interestingly, gold's futures curve implies a gain lower than inflation exceptions...
Isn't this a "contango"? https://www.investopedia.com/terms/c/contango.asp

When that happened in OIL it took several years languishing at the bottom of the price move for the commodity to start to rise again. And only that happened when supplied were literally sent out to sea in ships...to just sit there until needed.

If something similar where to happen in the gold market, then supply must dwindle for Gold to rise significantly...yes? Or do I have this backward.
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  • #66
  • Jun 13, 2019 12:55pm Jun 13, 2019 12:55pm
Quoting Ef5
1. Yes, if nothing changes spot gold should rise well above 1,400 based on futures. Technically there's an arb between GLD and futures, but the return would be too low to bother with.
Thanks for the insight, and thanks for taking the time to explain it! Much appreciated sir!

Quoting Ef5
Out of all the major metals the only one that has lower prices in the future is palladium. I'm not clear why, but that might be indicative of something.
Palladium is a lower cost substitute for platinum because of its greater supply. Around 80% of all palladium demand comes from catalytic converters. When cars go electric, what's next for palladium? It's generally considered a cheaper substitute for platinum. I'm not sure anybody would want it over platinum or gold for jewelry. Don't quote me on that.

Quoting Ef5
2. No problem, here's the futures curve for silver:
I was hoping for more than $1 rise in silver! I bet there could be if we see a recession or global slowdown. Maybe.
We must learn who is gold, and who is gold plated
EventsTrader Live All Time Return: 54.4%
  • #67
  • Jun 13, 2019 1:48pm Jun 13, 2019 1:48pm
Quoting SurfsUp
{quote} Recently read New Market Wizards and that was my number one take a way. Many people made majority of their money on a small number of big trades, and preserved capital when they aren't winning.
Thanks for this feedback/link! Seems to be my strategy... at least the dream version.
My "dream" is to have a seizable account, making just good 10-20trades per year, possibly within the 3m period and than rest On those trades, burners (disposable deposits) can be paralelly with tight leverage... in case you can ride it clean... I believe noone can be consistently profitable, because sometimes market is just weird, to say the least I know some traders that are let say good at least sometimes, at some trades... but they eventually (over)trade all their profits away...
Can you afford to take that chance?
  • #68
  • Jun 13, 2019 2:01pm Jun 13, 2019 2:01pm
Quoting DonPato
{quote} Isn't this a "contango"? https://www.investopedia.com/terms/c/contango.asp When that happened in OIL it took several years languishing at the bottom of the price move for the commodity to start to rise again. And only that happened when supplied were literally sent out to sea in ships...to just sit there until needed. If something similar where to happen in the gold market, then supply must dwindle for Gold to rise significantly...yes? Or do I have this backward.
Yes, a commodity is in contango when longer dated futures are priced higher than spot. The futures curve can make things more difficult for futures traders since they have to be right on top of whatever is already priced in for appreciation/depreciation. I've seen a few times where spot has gone up and later futures contracts gone down.

Regarding gold though, it's always in contango. Here's an illustration of what the gold futures curve has looked like at different times:

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot2.png Size: 80 KB


White = 6/13/2016
Blue = 6/13/2017
Green = 6/13/2018
Red = Today

As you can see, the steepness of the curve varies over time but it always has a positive slope.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #69
  • Jun 13, 2019 2:03pm Jun 13, 2019 2:03pm
Quoting EventsTrader
{quote} Palladium is a lower cost substitute for platinum because of its greater supply. Around 80% of all palladium demand comes from catalytic converters. When cars go electric, what's next for palladium? It's generally considered a cheaper substitute for platinum. I'm not sure anybody would want it over platinum or gold for jewelry.
You make a good point. Fundamentally it seems like you'd have to be bearish on palladium long-term.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #70
  • Jun 13, 2019 2:13pm Jun 13, 2019 2:13pm
Quoting Ef5
...Regarding gold though, it's always in contango...
I was unaware of this anomaly in Gold. And to think I was going to start trading Gold Futures...I guess I'll stick with spot and physical. I trade e-minis futures (as my day job) and always see the futures market price is slightly below the cash price. But I've also noted the cash price follows the futures price very consistently...its not tick-for-tick but its looks the same once the day is done. Notably the futures market (on tick charts) is far more volatile, for obvious reasons. I would imagine Gold futures are similar, except for the contango...

Thank you for this valuable info.
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  • #71
  • Jun 13, 2019 2:32pm Jun 13, 2019 2:32pm
Quoting Ef5
{quote} You make a good point. Fundamentally it seems like you'd have to be bearish on palladium long-term.
It looks like I was wrong. Palladium is the metal used in non-diesel engines. Platinum is used for diesel catalytic converters. This was worth the read: https://www.kitco.com/news/2019-03-2...Palladium.html
We must learn who is gold, and who is gold plated
EventsTrader Live All Time Return: 54.4%
  • #72
  • Jun 13, 2019 7:24pm Jun 13, 2019 7:24pm
Quoting EventsTrader
{quote} It looks like I was wrong. Palladium is the metal used in non-diesel engines. Platinum is used for diesel catalytic converters. This was worth the read: https://www.kitco.com/news/2019-03-2...Palladium.html
Yep! Platinum was actually used before Palladium in catalytic converters. Not sure if that contributed to the decline of Platinum prices or not but Palladium and Electric Cars as substitutes doesn't help!
careful not to step in a pile of it
  • #73
  • Jun 13, 2019 11:56pm Jun 13, 2019 11:56pm
Quoting DonPato
{quote} I was unaware of this anomaly in Gold. And to think I was going to start trading Gold Futures...I guess I'll stick with spot and physical. I trade e-minis futures (as my day job) and always see the futures market price is slightly below the cash price. But I've also noted the cash price follows the futures price very consistently...its not tick-for-tick but its looks the same once the day is done. Notably the futures market (on tick charts) is far more volatile, for obvious reasons. I would imagine Gold futures are similar, except for the...
You're welcome Don.

My preferred instrument is still futures regardless a few drawbacks. Which e-minis do you trade?
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #74
  • Jun 14, 2019 9:58am Jun 14, 2019 9:58am
Quoting Ef5
{quote} You're welcome Don. My preferred instrument is still futures regardless a few drawbacks. Which e-minis do you trade?
I'm beginning to understand why NOW...I was just cheated out of a good profit on spot by the stinking broker who widened the spread just enough so I would get filled on my limit. Oddly enough his how chart shows the bid reaching my take profit level and NOT transacting. This kind of thing does not happen in the futures market where there is far better regulation to keep the brokers honest. I'm afraid I'm just about done with retail brokers, and will most likely return to futures for most everything.

BTW, I trade YM (DOW) emini's. Today was a difficult day but finally made the daily goal (1% or better).
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  • #75
  • Jun 14, 2019 12:39pm Jun 14, 2019 12:39pm
Quoting DonPato
{quote} I'm beginning to understand why NOW...I was just cheated out of a good profit on spot by the stinking broker who widened the spread just enough so I would get filled on my limit. Oddly enough his how chart shows the bid reaching my take profit level and NOT transacting. This kind of thing does not happen in the futures market where there is far better regulation to keep the brokers honest. I'm afraid I'm just about done with retail brokers, and will most likely return to futures for most everything.
Exactly, I'm not touching anything that isn't traded through a real exchange. Trading is difficult enough as it is, I have zero tolerance for any broker shenanigans.

Quoting DonPato
BTW, I trade YM (DOW) emini's. Today was a difficult day but finally made the daily goal (1% or better).
Excellent choice!
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #76
  • Jun 14, 2019 12:49pm Jun 14, 2019 12:49pm
Quoting auricforecas
Seems to be my strategy... at least the dream version.
Keep on dreaming and work to make it so!!!
If in doubt, paddle out!
  • #77
  • Jun 14, 2019 1:35pm Jun 14, 2019 1:35pm
Quoting SurfsUp
{quote} Keep on dreaming and work to make it so!!!
Yea, thanks! I will revise/re-test some strategies... in the next week or two/three.. and if the conditions will seem to be somewhat right... I will ATTACK with WILD CAT force... to get THE MEAT... I would have to hunt fearlessly... but after certain amount.. I would love to trade like that


Also as I already stated... DREAM of any REAL trader is to get out the racket asap, because it is just so stressful.. Back in the days it was famous to say "retire till 30"
Trustfunders etc... pension funders.. dream of PROFITs... hedgefunders, traders... DREAM of STABLE income unless they are adrenaline junkies of course but
those that are... get some consequences eventually.. it is just so stressfull to be so exposed all the time...

Anyway... my dream would be to have some GOLD stored, for reserves (only).. have some CASH (good buffer for basic expenses)... be on the "BUY side"...
BUY and HOLD... have some FUND to TRADE... "cherrypicked" trades; double-tripple per year and STOP... and also to have BURNER...for hobby/rush/"wild cat nail grinding"/extra-buck/rich-potential relatively disposable deposit... that could be rolled in a BIG SNOWBALL if things WORK well
Can you afford to take that chance?
  • #78
  • Jun 16, 2019 3:23pm Jun 16, 2019 3:23pm
Attached Image (click to enlarge)
Click to Enlarge Name: gold daily 64.jpg Size: 200 KB
  • #79
  • Jun 16, 2019 4:51pm Jun 16, 2019 4:51pm
I was reading an article over the weekend and came across an interesting chart. The chart below shows market expectations of the fed funds rate at different times:

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 388 KB


As you can see, the market is wrong A LOT. My point here is that the market is pricing in 3 rate cuts, but it doesn't exactly have credibility. Goldman's chief economist may be right about no rate cuts. If that's the case a short gold could be the best metals trade, but an interest rate play like short eurodollars would be a more direct bet.
Self-sufficiency is the greatest of all wealth. - Epicurus
  • #80
  • Jun 18, 2019 9:38am Jun 18, 2019 9:38am
Quoting Ef5
I was reading an article over the weekend and came across an interesting chart. The chart below shows market expectations of the fed funds rate at different times: {image} As you can see, the market is wrong A LOT. My point here is that the market is pricing in 3 rate cuts, but it doesn't exactly have credibility. Goldman's chief economist may be right about no rate cuts. If that's the case a short gold could be the best metals trade, but an interest rate play like...
Thanks. Inline with my view. I dont think Fed will cut 3 times in 2019. One and done more likely unless inflation really shoots to the downside.
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