It's amazing how this blog tweaks the market.

SWC, the only Platinum/Palladium miner/producer in the USA, jumped 14 cents after Bill's post.

BTW it has been beaten down and is worth taking a look at.

Long SWC

Bill,

Can you clarify the contango situation in regards to ETFs such as GLD and SLV. I assume that ETFs (supposedly) backed by a store of bullion are not buying and selling futures contracts?

I believe SWC is now majority owned by Norislk Nickel, which in turn is controlled by a Russian oligarch (Potanin) for what it's worth ...

http://www.financialsense.com/stormwatch/geo/pastanalysis/2004/1103.html

TimesOnline speculated early this year that Norilsk might be "bought back in" at some point in the next couple of years by Alrosa, the Russian state diamond monopoly.

I don't what any of this might mean for an investor in Stillwater Mining. Maybe nothing, but I don't think that SWC's current and possible future "family relationships" are widely known among individual investors. (The corp. profiles in WSJ and GoogleFinance make no mention).

I also suspect, at a minimum, that SWC can't be considered a western, profit-maximizing company anymore.

Still, I have traded it short term, as well as Norilsk (which is more liquid in London than in US).

http://business.timesonline.co.uk/article/0,,17549-1984269,00.html

SWC is Russia's US outlet for Plat/Pall. There is a written guarantee to supply between the parties to correct any shortfall SWC may encounter.

2nd_ave, the SLV (and I assume the GLD, but I have not studied the GLD prospectus, so all comments are relative to the SLV) is comprised of bullion stored in vaults in England, under the custodial care of JP Morgan. The only buying and selling it can do are:

1) selling some small portion to cover fund expenses. This is why the actual value of the shares should drop relative to the price of the metal as time goes by.

and

2) the Authorized Participants can present baskets of bullion for baskets of shares, and vice versa. The APs are the only ones who can redeem ETF shares for physical. But that's not the same as trading within the ETF, and the APs are (ostensibly) seperate entities from the fund sponsor (Barclays.) Barclays is not supposed to have an influence on the distribution or redemption of the bullion/shares.

However, since the Barclays, the fund custodian and the APs are all very cosy, who knows what discussions take place about this after they all conclude for the London fix meeting, or whevever.

The real question I would like answered, and this is not clear from the prospectus, is this: "Is the bullion held in trust for the ETFs loaned, leased, or otherwise made available for trading in the market by the large bullion banks, members of the metal exchanges or other traders in any way?"

This large pool of metal has got to be very tempting for those who have made a lot of money selling short those metals. And the use of it to short the market would be in direct conflict with the share owners, who, by definition, are playing gold and silver long.

The prospectus is available and makes for very interesting reading. I strongly suggest anyone who is interested in these ETFs read the prospectus very carefully.

http://www.sec.gov/Archives/edgar/data/1330568/000119312506086865/ds1a.htm

Mike
NYC

Thanks for the report, Bill. I was sorely tempted to buy SLW today, as it bounced off its 200 dma and the RSI and stochastics show an extreme oversold condition. But I instead turned my attention to other areas of the market because I don't trust the PMs short-term. Reading about the expected contago effect next week confirmed my distrust.

"Commodities may be bottoming"
Possibly a short term bottom. I believe the path of least resistance is to keep shorting, but not at these levels. If you look at the 5 year weekly charts, there still is significant downside exposure on gold, copper, refiners, oil service. etc.. Natural gas is the only exception and very interesting at the current price.

number2son

I carefully watched SLW (in the morning) also, but came to the same conclusion as you. Let's see how next week goes.

number2son and seamus, may I ask where do you see the extreme oversold condition of SLW? RSIs still 26/41/50.

Goldcorp on the other hand, at 12/26/40. Even GLD itself is at 23/32/50. Thx.

SiO2

I can't speak for number2son, but I was following the bounce off the 200 dma. His comment of RSI & stoch may not refer to the daily, weekly, monthly you quote, but to a hourly, 30 minute or less chart.

As Bill has mentioned, gold and PMs are a dance. You have to get the rhythm (intuition doesn't hurt either). IMHO, silver is a different dance than gold.

Over the past year, there have been times to buy gold for instance when the RSI went under 50 because of other technical indicators. But, I'm not a technician but a student of the game (and dance). Generally speaking I find the RSI model very helpful dealing with stocks but I do consider a lot of other factors when looking at PMs.

And it's election time in the States which throws more curve balls (or should I say sliders)! Good luck.

SiO2,

That's right, I was referring to the short term charts. Given the PM volatility, and my time horizon for trading, I find these as much more valuable than the weekly and monthly charts.

Others (like ragintrader, for example) are looking at the same charts with a longer-term bearish bias, which would make them avoid adding to shorts here.

When it comes to gold and the indexs, Frank barbera would agree with CS:

http://www.gata.org/files/BarberaLetter091406.pdf