• Precious metals gain 5.65% in Q2.
  • Silver edges just 0.95% higher for the quarter and continued to lag gold
  • Palladium continues to lead the pack with a 14.2% gain in Q2
  • Platinum was the worst-performing precious metal with a 1.58% loss during the three-month period.
  • Gold rallies 9.03% and ends Q2 on a bullish note as it breaks out to the upside.

The precious metals sector of the commodities market posted a gain in the second quarter of 2019 with palladium and gold prices moving higher while platinum was lower, and silver only rallied marginally.

The composite of the four precious metals that trade on the COMEX and NYMEX divisions of the CME dropped by 8.10% in 2014. The sector fell by 19.46% in 2015, but in 2016, precious metals gained 11.71 %. Precious metals moved 20.19% higher in 2017 posting its second consecutive annual gain. For the year ending on December 31, 2018, the precious metals sector was 3.46% lower. In Q2, the sector gained 5.65% and was 10.29% higher for the first half of 2019, adding to the Q1 gains.

The losses in 2018 were likely the result of a more hawkish Federal reserve in the US. The Fed Funds rate rose four times by 25 basis points last year, boosting the short-term rate to 2.25-2.50%. At the same time, quantitative tightening caused rates to rise further out on the yield curve in the US. However, at the March FOMC meeting, the US central bank reversed course. While the Fed had guided that the market should expect another two rate hikes in 2019 and the same in 2020, projections for slower GDP growth at 2.1% in the US in 2019 on the back of weakening economic data caused the Fed to alter the course of monetary policy. On March 20, the Fed told markets there would likely be no rate hikes in 2019 and lowered their projection to only one 25 basis point increase in the Fed Funds rate in 2020. At the same time, the program of balance sheet reduction will end in September 2019, which was a dovish pivot by the Fed. On June 18, the Fed became even more dovish as recent economic data, and the escalation of the trade dispute between the US and China will now cause the Fed Funds rate to move lower before the end of 2019. Gold had been rallying on the prospects of lower interest rates, and the move by the Fed lit a bullish fuse under the yellow metal.

Meanwhile, global interest rates continue to be at very low levels- in Europe, and Japan rates remain at negative levels. The ECB discontinued their QE program at the end of 2018. However, sluggish economic growth in Europe means that the ECB will continue on a dovish path when it comes to monetary policy. On June 17, the ECB President delivered what could have been the most dovish statement without making changes in interest rates. The statement pushed the value of the euro currency lower against the US dollar.

Source: Twitter

In a move to send a message to the US Fed and his appointee, Chairman Jerome Powell, President Trump tweeted that the dovish message from ECB President Draghi on June 18 was pushing down the euro and sending the dollar higher, and he wanted to see a similar move from the FMOC on June 19. The following day, the Fed took a more dovish stance to monetary policy.

The gap remains wide between U.S. rates and other currency yields, which is a supportive factor for the value of the dollar. However, if the Fed cuts rates by the end of 2019, it will narrow the gulf and could weigh on the value of the US currency.

The escalation of the trade dispute between the US and China increased fear and uncertainty in markets in Q2. As the same time, the temperature increased in the Middle Eastin Q2, which continues to be a potential tinderbox that could flare up at any time without notice. The tensions between Saudi Arabia and Iran continues to be a concern in the region. U.S. and European relations with Russia remain strained. In May, exemptions on Iranian oil purchases by eight nations expired and the US blamed the Iranians for attacks on oil tankers near the Strait of Hormuz as well as attacks on Saudi sovereign territory via missile attacks from Yemen.

In the US, many Democrats in the House of Representatives are calling of impeachment proceedings against President Trump. The 2020 Presidential campaign season is now moving into full swing. While the 2016 campaign was one of the most divisive in history, the upcoming election is likely to be even more contentious.

The spectacular rise in digital currencies throughout 2017 came to a brutal end in 2018 as Bitcoin, and other cryptocurrencies declined precipitously. The total market cap of the digital currency market dropped from over $800 billion in December 2017 to just over $125 billion at the end of last year. However, the prices and the market cap of the asset class came storming back in Q2, which could be a sign of declining faith in governments around the world. In Q2, the market cap of the asset class rose to $347.407 or 142.38% for the three-month period. Bitcoin moved 202.92% higher in Q2 to the $12,344.05 level and was 230.77% higher over the first six months of 2019 after suffering a decline of 74.36% in 2018. Litecoin posted a 95.23% gain in Q2 and was 295.04% higher so far in 2019. Ethereum gained 120.09% in Q2 and was 133.68% higher over the first six months of this year. Ripple gained 36.57% in Q2 and was 19.74% higher over the first half of this year. The cryptocurrency asset class was flying high at the end of Q2.

Precious metals are moving into Q3 with gains in three of the four members of the sector that trade on the COMEX and NYMEX futures exchanges over the first six months of this year. Silver is the only metal that is down over the period. The price of palladium rose to a new record high in Q1. Platinum and rhodium posted impressive gains, and gold closed the quarter after breaking out to the upside at a multiyear high.

Gold Review

Gold fell 10.46% in 2015, but it rallied by 8.66% in 2016. The yellow metal posted a 13.65% gain in 2017. Gold moved 2.14% lower in 2018. In Q2, the yellow metal gained 9.03% and was 10.02% higher over the first half of the year. Gold traded in a range between $1266.00 and $1442.90 so far this year and settled on June 28 at $1409.70 per ounce. The dollar index fell by 1.22% in Q2 and down 0.07% over the first six months of the year. Gold’s rise continues to be a testament to its overall strength in the current environment.

Gold has not only been moving higher in dollar terms but also in euro and yen currency terms, which is the sign of a bull market in the precious metal.

Source: CQG

The weekly chart shows that gold has been moving higher in dollar terms since last August.

Source: CQG

The weekly chart of gold in euro currency terms shows price appreciation since late 2018.

Source: CQG

In yen term, gold has also bull in bullish mode on the weekly chart.

The GDX, which is an ETF that represents the leading gold mining companies, closed Q2 at $25.56 compared to $22.42 at the end of Q1 and $21.09 at the end of Q4 2018. GDX gained 14% in Q2 and is 21.2% higher over the first six months of 2019. The leading gold mining stocks outperformed the yellow metal so far in 2019.

The GDXJ, the ETF that tracks the junior gold mining companies closed Q2 at $34.96 after settling at $30.19 at the end of Q4 and $31.73 at the close of Q1. GDXJ moved 10.2% higher in Q2 and is 15.8% higher so far this year. GDX outperformed the price action in the gold futures market while the GDXJ underperformed GDX but outperformed gold.

Open interest in COMEX gold futures contracts increased by 130,905 contracts to 579,514 contracts during the three-month period from the end of Q1 to the end of Q2 2019 a rise of 29.2%. Rising price and increasing open interest is a technical validation of a bullish trend in a futures market.

Meanwhile, the leader of the digital currency asset class moved higher during the same period with Bitcoin recovering from $4075 at the end of Q1 to $12,344.05 at the end of Q3. The cryptocurrency gained 202.92% in Q2 and is 230.77% higher so far in 2019 at the halfway mark.

Source: CQG

As the monthly chart of COMEX gold futures highlights, price momentum in the yellow metal is trending higher as the price broke out to the upside out of a multi-year trading range.

After two attempts to challenge the 2016 peak at $1377.50, the yellow metal put in a double top at $1365.40 in late January and early April which led to a lower low for 2018. Nearby gold futures traded to a low of $1161.40 in mid-August 2018. Since then the price has made higher lows and higher highs as gold broke through its 2016 high at $1377.50 on June following the Fed meeting. Technical support now stands at the breakout level just below $1380 per ounce as we head into Q3.

Source: CQG

The weekly chart illustrates that gold has been in a bullish trend since the mid-August 2018 low at $1161.40 per ounce, and after six straight weeks of gains the price was in bullish mode at the end of Q3.

Gold is moving into Q3 on a positive note. The stronger dollar had not stood in front of recent gains throughout 2019. A less hawkish Fed is a supportive factor for the gold market. In the last quarterly report, I wrote, “I am bullish on gold for 2019 but would reconsider if the price moves below the $1236.50 and $1200 levels over the second quarter.” Gold did not violate those levels on the downside as the price reached a low at just over $1265 in Q2. Central banks continue to be net buyers of gold with China and Russia leading the way as the two nations continue to build their reserves.

I will be using gold futures on both the long and short sides of the market over the coming weeks to go with short-term trends that develop. As of the end of the quarter, I am long with a trailing stop below the $1380 level. For those who do not trade in the volatile futures arena, the triple-leveraged UGLD and DGLD ETN products can serve as effective trading instruments for short-term forays into the gold market. I tend to hold these instruments for periods of two weeks or less. I also favor the GDX and GDXJ ETF products as gold mining shares typically outperform the yellow metal on the upside.

Silver Review

Silver was the best performing precious metal in 2016. Silver was up 15.63% in 2016 after moving 11.51% lower in 2015. In 2014, silver shed 22.82% of its value. In 2017, the price of silver moved 7.42% higher. Silver lost 9.36% of its value in 2018. Silver underperformed gold in Q1 and Q2 this year as it rose by only 0.95% in Q2 and was 1.85% lower for the first six months of 2019. Silver traded in a range between $14.245 and $16.385 since the start of 2019. Silver has been consolidating, but the price action remains in a trend where the precious metal has made lower highs and lower lows since it traded at over $21 per ounce in July 2016.

Silver open interest increased over Q2. The metric in silver futures traded on COMEX moved from 196,044 contracts at the end of Q1 to 220,612 contracts at the end of Q2 – an increase of 24,568 or 12.5%. Silver tends to magnify moves in the gold market, but that has not been the case in 2019 as gold had taken a leadership role when it comes to price direction. In Q1 and Q2, gold outperformed silver.

As we move forward into Q3, I will continue to watch the silver-gold ratio, which closed 2016 at 72.18 and climbed to 76.37 at the end of 2017. The ratio moved higher to 82.45 at the end of 2018 after trading to a high at 86.42 during Q4 2018. In Q1, the ratio rose to 85.57, up 3.12 over the first three months of 2019. In Q2, the relationship continued the trend as it was at the 92.42 level, up another 6.85 for the quarter and 9.97 over the first half of 2019.

When the ratio moves to the lower, it tends to be a bullish sign for the precious metals sector on a historical basis. The theory is that when silver outperforms gold, it is often the result of speculative capital coming to the silver market, which typically moves more than the yellow metal on a percentage basis. When the ratio moves higher, it tends to be a bearish sign for the prices of gold and silver since both metals depend on investment demand. The ratio remains at the highest level in over a quarter of a century at the end of Q2.

The long-term pivot point for the ratio is around the 55:1 level. Silver underperformed gold in 2017, and the trend continued in 2018 and over the first half of 2019. Silver always has the potential to surprise, but over the first six months, the price action continued to be weak. As we move into Q3, silver had been a tightly coiled spring that had been trading between $14 and $16 per ounce. Silver needs to negate the pattern of lower highs, which would occur if the price trades above its first level of critical resistance at $16.20 per ounce.

Source: CQG

As the weekly chart highlights, price momentum crossed higher in oversold territory.

Source: CQG

As the monthly chart illustrates, support is at $13.635, which was the December 2015 low. Technical resistance is at the 2019 high at $16.20, which stands as the first level on the upside on the longer-term chart after a pattern of lower highs since the July 2016 peak at $21.095. Silver still needs to play catchup with gold as it remains close to the all-time modern-day low against the yellow metal as we head into Q3. Silver is a metal that tends to surprise, and its current period of consolidation could lead to a significant price recovery if gold continues to rise. Silver closed Q2 at $15.2530 per ounce.

Platinum Review

Platinum continued to be the laggard in the precious metals sector in Q2 after an attempt at a rally to above the $900 per ounce level failed. Platinum moved 15.18% lower in 2018. In Q1, it posted a 6.66% gain for the quarter, but it gave some of that back in Q2 as the price fell 1.58% and was up 4.98% at the midway point of the year.

Platinum traded in a range between $780.90 and $920.40 over the first six months of 2019 and closed the second quarter closer to the low than the high. In August 2018, platinum fell to its lowest price since the fourth quarter of 2003, a decade and a half low for the precious metal. Platinum is a metal that offers significant value on a historical basis compared to the prices of all of the other precious metals. Since last summer, platinum probed below $800 per ounce on the nearby futures contract numerous times, but it has not made a lower low.

Platinum is a rare precious metal that is expensive and difficult to mine. The vast majority of platinum production, around eighty percent, comes from South Africa. Most of the balance of output comes from Russia, the largest palladium producer, and the metal is a byproduct of nickel production in the Norilsk region of Siberia. As an industrial precious metal, a large percentage of platinum demand comes from its use in automobile catalytic converters. Industrial demand continued to be weak for the rare precious metal as palladium use in automobiles has grown at the expense of platinum. For years, platinum traded at a significant premium to palladium, but that changed in Q4 of 2017.

As I wrote in the past quarterly reports, “Investment demand has been absent in platinum, and its price has remained weak compared with gold. In September 2017 palladium began gaining on platinum and reached a $150 premium in December 2017. Platinum, like many other industrial commodities, posted a new multi-year low in early 2016 before the price corrected. However, platinum is also a precious metal with a history of attracting investor interest. Eventually, the value proposition for platinum will cause a reversion to the mean against both palladium and gold. I believe that price action dating back to 2008 may have soured many investors on the platinum market. In March 2008, platinum traded to its all-time high at $2308.80 per ounce, and by October of the same year, it fell to $761.80. Over a seven-month period, the precious metal fell $1547 or 67%. The price action in 2008 may have scared investors and traders away from long-term structural positions in the platinum market because of its penchant for volatility and lack of liquidity during that period. However, compared with gold and palladium, platinum has a higher production cost, it is rarer, denser, and has a higher boiling and melting point. These characteristics could one day ignite the price of the metal that has been in a funk since 2014 compared with the other precious metals.”

Meanwhile, the fifteen-year low in platinum in Q3 2018 caused some primary producers in South Africa to close mine shafts where higher-cost production is no longer viable as the market price is below the cost of extraction. However, gains in palladium and rhodium are bound to eventually cause industrial users to turn to platinum as a substitute because of its higher density and higher resistance to heat. Meanwhile, we saw little or no evidence of platinum substitution for the other two platinum group metals in Q2.

Open interest in NYMEX platinum futures was at 68,155 contracts at the end of Q1 and ended Q2 at 83,751 an increase of 15,596 contracts or 22.9% over the three-month period. The open interest moved close to the all-time high during the quarter, which could be a sign of some investment demand.

Source: CQG

As the weekly chart shows, price momentum has trended lower since May and reached oversold territory at the end of Q2. The quarterly chart remains in deeply oversold territory, but the monthly chart moved to a neutral reading at the end of Q2.

The platinum-gold spread closed 2015 at a $168.50 discount; platinum was cheaper than gold. The long-term median level for this relationship over the past four decades had been around a $100-$200 premium for platinum over the price of gold. The premium reflects the rarity of platinum; there is more than ten times the amount of gold produced each year than platinum, and on a per ounce basis, industrial applications for platinum are much more than for gold. This relationship closed at a $246.20 discount at the end of 2016. In 2017, it closed at a $371.00 discount to the price of gold. In 2018, platinum closed at a $485.40 discount to the price of gold. In Q1, the spread improved a bit to $444.10, which was $41.30 higher than at the end of 2018. However, the spread went the other way in Q2 and closed on June 28 at a $574.20 discount for platinum, which was $103.10 lower than at the end of Q1 and at a new all-time low.

Source: CQG

As the quarterly chart of the price of platinum minus the price of gold reveals before 2015 platinum had never traded to a discount of over $200 to the price of gold. In 2008, it sold at over a $1200 premium. The nickname for platinum is “rich man’s gold” – in recent years it has been anything but that, platinum has not traded at a premium to gold since 2014. In 2015, 2016, 2017, 2018, and through the first six months of 2019, platinum has been the cheaper alternative when compared to the yellow metal as the trend in the spread has sent it into a bearish abyss and bottomless pit.

Source: CQG

The daily chart of the price relationship highlights that the spread moved to a new all-time low late in Q2.

The discount tells us that platinum is either too cheap at its current price or gold is too expensive on a historical basis. The end of Q2 price of platinum implies a price of $635.50 for gold given a reversion to the mean at a $200 premium for platinum on the long-term price relationship. On the other hand, it also could suggest a platinum price of $1609.70. The divergence is significant and based on the closing level of $835.50 per ounce platinum would need to rally by $774.20 or 92.7% to revert to the long-term median level for the price relationship with gold at the $1409.70 level. Divergence often creates the most profitable trading opportunities. However, the divergence since 2014 has created one of the most frustrating and painful mean reversion trades I can remember for those who have been long platinum and short gold on spread. The spread continued to move away from the norm in Q2.

Platinum had been cheap against gold for years, and what was cheap got even less expensive in Q2. At the same time, platinum continued to underperform palladium over the three-month period as it also fell to a new record low against its cousin in the PGM group which could eventually give rise to substitution, but there has been no sign of that in the platinum market in 2019.

Palladium Review

Palladium was the best performing precious metal in 2016, posting a gain of 20.96% for the year. Palladium fell 29.61% in 2015 making it the worst-performing precious metal of that year. Palladium fell to lows of $451.50 per ounce in January 2016. Palladium moved an incredible 56.08% higher in 2017, making it the best performing commodity across all sectors for the year. Palladium moved 12.84% higher in 2018. In Q1, palladium continued to lead the precious metals that trade on the COMEX and NYMEX futures exchanges as it moved 12.08% higher making a series of new all-time highs. Q2 was no different as the price of the metal posted a 14.2% gain for the three months that ended on June 28. Palladium has increased in value by 28% so far in 2019 at the midpoint of the year.

Palladium, a platinum group metal, is a rare precious metal. Russia, more precisely the Norilsk Nickel mines in Siberia, and South Africa produces the majority of the world’s palladium. Like platinum in Russia, palladium is a byproduct of nickel production. Before the explosive move to the upside, the previous all-time high for palladium came in January 2001 at $1090 per ounce. In Q1, the metal peaked at $1599.10 per ounce. Palladium continues to outperform platinum, its sister metal.

Source: CQG

As the quarterly chart highlights, the all-time high in palladium over platinum came in 2001 when palladium traded to its record peak at $1090 per ounce. The spread peaked at a $344.20 premium for palladium over platinum. However, from 2003 through 2014, platinum traded at more than a $500 premium to palladium which encouraged industrial consumers to use palladium for their requirements. The spread between the two platinum group metals closed 2017 at a $122.70 spread where platinum was lower than palladium. In 2018, the spread fell to a new record low and closed the year at $401.30. In Q1 2019, as palladium picked up steam on the upside, the spread moved to $492.90 after trading at over $700 before the end of March. In Q2, palladium closed at a $696.90 premium to the price of platinum as the spread moved $204 over the second quarter and $295.60 for the year.

Source: CQG

Meanwhile, open interest in NYMEX palladium futures moved from 23,754 contracts at the end of Q1 to 23,561 contracts at the end of Q2 2019, a decrease of only 193 contracts or 0.81% over the quarter.

The risk in the palladium market had increased with the price, which led to a sharp selloff during the final week of March. Palladium traded to just under $1600 per ounce and fell over $300 before finding a bottom at $1256.50 in early May. The palladium market is in deficit as supplies cannot keep up with demand. The demand for palladium-based catalytic converters around the world that clean emissions from the air has exploded. By the end of Q2, palladium rebounded to $1532.40 per ounce on June 28 and could be setting the stage for a higher high in Q3.

While palladium outperformed all precious metals in Q1, another precious metal that does not trade on the futures exchange had been posting steady gains.

Source: Kitco

The price of rhodium, a byproduct of platinum output in South Africa moved significantly higher in 2018 and closed last year at $2300 bid at $2450 offered. At the end of Q1 2019, rhodium was trading at $2795 bid at $2945 offered, $495 or 21.5% higher over the first three months of this year. On June 28, the price was at $2865 bid at $3065 offered, $95 per ounce higher or 3.3% or $590 or 24.8% higher so far in 2019. The bid-offer spread widened by $50 at the higher price at the end of Q2. While palladium it a new all-time peak in 2019, the record level in the rhodium market is above the price at the end of Q2. In 2008, the price of rhodium rose to the $10,000 per ounce level. Since some South African mines are cutting platinum output because of low prices, rhodium supplies have dwindled to levels which took the price appreciably higher. The price strength in both the rhodium and the palladium markets could eventually impact the price of platinum which has a higher resistance to heat, is denser, and is the only platinum group metal that has a history of significant investor demand.

The price situation in platinum had become so dire that primary producers in South Africa trimmed output at higher cost mines causing the shortage of rhodium, which is a byproduct of platinum production. The silver lining is that platinum can serve as a substitute for palladium in catalytic converters if consumers decide to change their production lines. The bottom line is that car manufacturers became addicted to palladium in the 90s when the Russians were liquidating stockpiles at a fraction of the cost of an ounce of platinum. Now that the tables have turned when it comes to prices, it could be just a matter of time before platinum begins showing up in catalytic converters. At over a $690 discount to palladium, and an almost $2130 discount to rhodium, platinum is the wiser economic choice when it comes to most consumer requirements for platinum group metals these days. The value proposition for platinum continues to be compelling as we move into Q3 2019, but that does not mean that the spreads at divergent historical levels cannot move further away from norms. Platinum has been a very frustrating investment, while palladium and rhodium have offered incredible rewards since 2016.

Looking forward to Q3 2019 in the precious metals

Palladium and gold posted gains in Q2 while platinum fell, and silver posted a marginal gain. The prospects for Q3 and the second half of 2019 are different for the various metals. Palladium and rhodium are industrial metals. The decline in platinum output should continue to provide support for rhodium which could drive the price of the rare physical metal to much higher levels before it even threatens to challenge the 2007 peak at $10,000 per ounce. When it comes to palladium, rising demand for catalytic converters across the globe is supportive of the price of rare metals. Platinum and silver are precious metals with many industrial applications and investment angles. In platinum and silver, sentiment will need to shift to create buying that would cause the prices of catch up with the other members of the sector.

When it comes to the gold market, interest rates, the dollar, and fear and uncertainty drove the price higher, and above the 2016 peak and level of critical technical resistance at $1377.50 per ounce. The break to the upside could take on a life of its own as trend-following traders and speculators could continue to pile into the gold market. A bullish technical breakout in gold could eventually ignite both the silver and the platinum markets. Time will tell if gold can hold the $1380 level in Q3.

The political and economic state of the world remains complex and turbulent, which always has the potential to drive investors to safe-haven investment vehicles like precious metals.

The Middle East remains an area of the world that could cause fear and uncertainty to rise in the blink of an eye. The recent provocative acts by Iran and the rising potential of a US response are examples of what we could look forward to during the second half of this year.

The relations between Russia and the west have deteriorated to a post-cold war low. Additionally, Russian meddling in the 2016 U.S. Presidential election continues to be a dark cloud hanging over U.S.-Russian relations.

Trade issues between the U.S. and China escalated in May, and time will tell if the summit between Presidents Trump and Xi in Japan at the end of June can get the negotiations for a deal back on track and return optimism to the markets.

The new deadline for Brexit is on October 29. It looks like Boris Johnson will take over from Prime Minister Theresa May, but we will find out if he can survive until the end of October or the members of Parliament will call for a new general election. Gold reached a peak in the aftermath of the Brexit referendum in June 2016, and any surprises could cause buying to return to the gold market as a safe-haven asset.

Gold heads into Q3 above its technical resistance level while silver over $5.80 below its 2016 peak at over $21 per ounce. The level of the silver-gold ratio it almost at a record peak, which could lead to a period of mean reversion. However, the action in the platinum-gold and platinum-palladium spreads remind us that there are few rules when it comes to the inter-commodity spreads and divergences can widen further than most analysts believe possible.

On the U.S. domestic front, political divisions between the ruling Republican Party and Democrats have reached epic levels. A worsening of the domestic situation in the U.S. could cause bouts of fear and uncertainty which would provide support for precious metals, particularly gold. The 2020 election cycle is kicking into high gear which is likely to be a lot more contentious than the 2016 contest.

Central banks continue to be net buyers of gold with China and Russia absorbing domestic production and buying on the international market. We looked at the short-term pictures for euro and yen gold earlier in the report, but the longer-term pictures are compelling when it comes to the price trends.

Source: CQG

As the monthly chart of gold in euro-terms highlights, the yellow metal continues to make higher lows and higher highs. Price momentum continued to rise over the past three months and is in overbought territory.

Source: CQG

The price of gold in yen-terms displays a solid bullish trend dating back to 2001. Gold in yen also moved higher in 2019, and price momentum on the monthly chart displays an overbought condition. Gold in some other currencies like the Australian dollar and Chinese yuan was at record levels at the end of Q2.

While the dollar is the reserve currency of the world, and the benchmark pricing mechanism for the yellow metal, its value in other currencies could impact the path of least resistance for the price of gold. At the same time, growing global debt after the massive monetary stimulus programs that followed the 2008 global financial crisis continues to present a bullish case for the price of gold and all precious metals that investors purchase as stores of wealth. Moreover, the Fed joined the ECB and BOJ when it comes to a return to dovish monetary policy in 2019, and at their most recent meeting in June, the central bank told markets that declines in the Fed Funds rates are on the horizon, which is supportive of the prices of precious metals.

Meanwhile, the bullish move in the digital currency asset class in Q2 is a sign that faith in government legal tender continues to decline. The significant rebound in Q2 could be at least partially because of the trade dispute between the US and China. As the Chinese government devalues the yuan and slashes interest rates to stimulate the economy, the demand rises for digital currencies such as Bitcoin from wealthy Chinese looking to shelter their assets from the government and the impact of declines in currency values. I continue to believe that an ETF product that has a robust custodial backbone for Bitcoin and many of the other digital currencies would bring a lot more interest and liquidity to the asset class, which would lift prices. The introduction of a digital token, Libra, by Facebook in June could be adding validations and lots of interest to the sector. Members of the US Congress were objecting to the company’s involvement in the cryptocurrency sector at the end of Q2.

In Q2, Bitcoin gained 202.92%. Ethereum moved 120.09% higher in Q2. Litecoin’s value moved 95.23% higher in Q2 after exploding higher by 102.35% in Q1, while Ripple was 36.57% higher during the second quarter. Bitcoin Cash gained 155.2% in Q2, and Bitcoin Gold gained 116.18% in Q2 2019. The market cap of the entire digital currency market which comprises 2296 tokens, up 160 from the end of Q1, increased from $143.33 billion at the end of Q1 to $347.407 billion at the end of Q2 2019. The market cap peaked at over $800 billion in December 2017.

I am going into Q3 with a bullish orientation to the precious metals sector. I like the price action in gold and will continue to trade and invest from the long side in the yellow metal with tight stops. The critical levels in the gold market are the breakout level at $1377.50, the 2019 low at $1266, the mid-August 2018 low at $1161.40 on the downside and the $1500-$1530 level on the upside. With gold moving above the top end of its trading range, the price action could become more volatile over the coming three months. I will be using futures and the GLD and IAU ETFs, UGLD and DGLD on short-term positions as well as the mining ETFs, GDX, and GDXJ. On short-term trades, NUGT and JNUG can magnify results on the long side of the market.

In silver, I believe the metal was a tightly coiled spring that will eventually break out of the $14-$16 range and favor the upside but will be quick to stop out of long positions if the price begins to sink. I will be using futures, SLV, and the USLV product for long positions and the DSLV for shorts. With historical volatility at low levels, call options will limit risk and open the upside in case of a sudden break to the upside.

In palladium, the trend is your friend, and it continues to be higher, but risk rises with the price of the metal that suffers from bouts of illiquidity. The PALL does a good job replicating price action in the NYMEX palladium futures market. Finally, in platinum, I will continue to buy physical metal on a scale-down basis, which has been a very frustrating exercise. Rather than paying the high premium charged by dealers, I will purchase nearby NYMEX futures and stand for delivery. Each platinum contract represents 50 ounces of metal, so at the closing price at the end of Q2, a platinum contract has a value of around $41,775 at a price of $835.50 per ounce. I will also be using the PPLT and PLTM ETF products in the platinum market.

I will be watching the price action and the news cycle, which will give me clues about the path of least resistance for prices over the coming three months. Each quarter is always a new adventure in markets. As we head into Q3, gold could offer the most attractive value proposition given its long history as a safe haven for capital. When it comes to absolute value, while platinum has been a dog, every dog has its day, and the metal is long-overdue for a massive price recovery. I was bullish for precious metals prices at the end of 2018 and Q1 and see no reason to alter that opinion as we head into Q3.

The GLTR is an ETF that represents a basket of the four precious metals that trade on the COMEX and NYMEX divisions of the CME for those who want exposure to the sector without trading the individual metals. GLTR is a liquid instrument with $355.03 million in net assets and an average of 20,317 shares trading each day. The top holdings of GLTR include:

Source: Yahoo Finance

Precious metals could be one of the most exciting sectors in the second half of 2019, given their long history as monetary instruments and stores of value. GLTR moved from $63.68 at the end of Q1 at $68.07 per share, an increase of 6.9% for the quarter that ended last Friday which outperformed the composite given GLTR’s holdings which were almost 60% invested in gold which was up over 9% for the quarter. GLTR slightly outperformed the sector which was 5.65% higher over Q2.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.