Precious Metals - Value Versus Momentum

The four precious metals trading on the Chicago Mercantile Exchange’s COMEX and NYMEX divisions are gold, silver, platinum, and palladium. Gold and silver have been stores of value, inflation barometers, and means of exchange for thousands of years. While silver’s role in the global financial system has declined, central banks, governments, and monetary authorities continue to own gold and hold the metal as an integral part of their foreign currency reserves. Governments validate gold’s role as the ultimate form of hard currency. Gold has made higher record highs since the turn of this century, with the latest peak in July 2024.

Silver prices rose to either side of the $50 per ounce in 1980 and 2011. Silver’s penchant for volatility has caused governments to remove it as a reserve asset. Still, speculators and investors continue to embrace silver because of its price variance and returns when trends develop. Gold and silver are highly liquid metals.

Platinum and palladium are industrial and precious metals. They are rarer than gold and silver, making them far less liquid than their precious cousins. While gold and silver remain in bullish trends in August 2024, platinum has been trading sideways around the $1,000 per ounce level, and palladium has been in a brutal bearish trend since running out of upside steam at the March 2022 high.

Gold and silver have upside momentum, while platinum and palladium could offer incredible value at their current price levels.

Gold and silver since the turn of this century

• The continuous COMEX gold contract settled at $272 per ounce at the end of December 1999. At the $2,500 level on August 12, COMEX gold was nearly 820% higher.
• COMEX silver futures settled at $5.413 per ounce at the end of the last century. At $27.90 on August 12, silver gained 415%.
• While gold has been in a steady bull market over the past twenty-four and a half years, silver’s price action has been choppy.

Platinum and palladium over the same period

• The continuous NYMEX platinum contract settled at $430.20 per ounce at the end of December 1999. At the $950 level on August 12, NYMEX platinum was 120.8% higher.
• NYMEX palladium futures settled at $449.20 per ounce at the end of the last century. At $910 on August 12, palladium gained 102.60%.
• While platinum reached a record high of over $2,308 in 2008 and palladium rose to an all-time peak of $3,380.50 in 2022, the PGMs trading on NYMEX have significantly underperformed gold and silver since the end of 1999 at the current price levels.

Annual production reveals liquidity factors

• Annual gold mine production of 3,000 metric tons in 2023 is worth over $241.131 billion at $2,500 per ounce.
• Annual silver mine output of 26,000 tons in 2023 is worth $23.322 billion at $27.90 per ounce.
• Annual platinum mine production of 180 tons in 2023 is worth $5.498 billion at $950 per ounce.
• Annual palladium mine production of 210 tons in 2023 is worth $6.144 billion at $910 per ounce.
• Platinum and palladium are rarer and far less liquid markets than gold and silver. 

Futures open interest reinforces the liquidity issues

• COMEX gold open interest, the total number of open long and short positions in the COMEX futures market, at 482,596 contracts, was worth $120.649 billion at $2,500 per ounce.
• COMEX silver open interest at 146,077 contracts was worth $20.378 billion at $27.90 per ounce.
• NYMEX platinum open interest at 82,202 contracts was worth $3.905 billion at $950 per ounce.
• NYMEX palladium open interest at 29,639 contracts was worth $2.697 billion at $910 per ounce.
• Platinum and palladium futures markets are far smaller than gold and silver.

Momentum versus value- The trend versus the potential

• Gold has been in a bullish trend since the 1999 lows.
• Silver has made higher lows and higher highs since the pandemic-inspired March 2020 low.
• Platinum and palladium have lagged gold and silver. Platinum has underperformed for decades, and palladium since the 2022 high.
• Gold, silver, platinum, and palladium are industrial and precious metals.
• Gold and silver have upward momentum, while platinum and palladium could offer significant value at the current price levels.
• The leading precious metals ETFs that own physical metal at GLD in gold, SLV in silver, PPLT in platinum, and PALL in palladium.
• Platinum and palladium are far less liquid than gold. Illiquid markets tend to be more volatile as bids to purchase disappear during bearish trends and offers to sell evaporate during bull markets.
• Platinum and palladium offer value, limited downside risk, and substantial upside potential at the current prices.

Gold and silver are in bullish trends, while the platinum and palladium markets are languishing. Palladium has been in a bearish trend since the 2022 high, and platinum is trading sideways with a $1,000 per ounce pivot point. Momentum and liquidity favor more upside for gold and silver, but the illiquid platinum and palladium markets could offer explosive returns if they break technical resistance levels.

Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!