GLTR Dulls: Time To Buy

In a June 27 article on Seeking Alpha, I wrote:

There are many compelling reasons for new record highs in gold and higher prices for silver, palladium, and platinum. GLTR will follow the leading precious metal, and buying on the dip to add to existing risk positions or establish new ones could lead to handsome returns over the coming months and years.

The abrdn Physical Precious Metals Basket Shares ETF (NYSEARCA:GLTR) was trading at $87.22 on June 22. On October 2, it was 5.6% lower at the $82.34 per share level. GLTR has lost its glitter over the past months, which could be a golden opportunity, no pun intended, for the future. It is virtually impossible to pick tops or bottoms in any market as they tend to extend past reasonable, logical, and rational price levels during bullish or bearish trends.

An ugly quarter for gold and silver

Gold prices declined 3.28% in Q3 2023, while silver fell 1.58%. Over the first nine months of 2023, gold was 2.18% higher, while silver dropped 6.61%.

December COMEX gold futures settled at $1,866.10 on September 29, with COMEX silver for December delivery at $22.45 per ounce.

The chart shows that December gold was trending lower in early October.

December silver was also in a bearish trend on October 3, over $1 lower than the Q3 closing price.

Platinum and palladium post gains in Q3

While gold and silver posted losses in Q3, platinum and palladium prices increased. Platinum closed at $915.90 per ounce, 1.26% higher for the third quarter. Palladium, at $1,256 per ounce on September 29, was 2.78% higher than the closing price at the end of June 2023. In 2023, platinum and palladium posted 14.70% and 30.14% respective losses in 2023 at the end of Q3.

Platinum was falling in early Q4.

Palladium also moved lower in early October.

Rising rates and a strong dollar index weigh on the leading precious metals

Rising interest rates weigh on the four precious metals futures markets trading on the CME’s COMEX and NYMEX divisions.

The U.S. 30-year Treasury bond futures chart highlights the decline to 111-05 in early October, the lowest level since October 2007. The long bond is steaming toward critical long-term technical support at the June 2007 104-41 low.

Rising interest rates increase the cost of carrying commodity inventories, and precious metals are no exception. The trajectory of rate increases attracts capital from stocks and other assets to fixed-income products as yields rise.

Meanwhile, higher U.S. interest rates have caused the US Dollar Index (DXY) to recover.

After probing below the 100 level in July 2023, the U.S. dollar index that measures the U.S. currency against other reserve foreign exchange instruments recovered to near the 107 level. A rising dollar tends to be bearish for precious metals and commodity prices.

The case for gold, silver, platinum, and palladium

Gold is a unique asset, a hybrid between a currency and a commodity. Gold is a metal and a hard asset held by central banks, monetary authorities, and governments worldwide as a foreign exchange reserve asset. Central banks have been net buyers of gold over the past years, increasing their holdings and validating gold’s role in the global financial system.

While gold prices have declined, the following factors favor gold at the current price level:

• The bull market in gold began in 1999 at $252.50 per ounce. Every significant correction in the gold futures market has been a buying opportunity leading to new and higher highs for nearly two-and-one-half-decades.
• The BRICS countries and their allies are moving toward developing a currency to challenge the U.S. dollar’s dominant role. Sanctions on Russia and China have caused these countries to move towards de-dollarization for global trade. The BRICS countries produce and own significant gold reserves, which could lead to backing a BRICS foreign exchange instrument with the precious metal to challenge the fiat dollar.
• While the U.S. dollar index is rising, it only measures the greenback against other reserve fiat currencies. The dollar could lose its worldwide standing for global trade if a BRICS currency is successful.
• Gold is a rare precious metal with thousands of years of history as the ultimate means of exchange.

Meanwhile, silver, platinum, and palladium could go along for the bullish ride if gold prices resume the upward trajectory:

• Silver prices tend to be more volatile than gold, moving in the same direction but more on a percentage basis. Silver is a precious and industrial metal with many uses, including a critical role in solar panels.
• Platinum and palladium are more industrial than precious metals. While production is limited, demand is rising as their high density and melting points make them crucial ingredients in catalysts that clean toxins from the environment. Moreover, most of the annual platinum and palladium output comes from two BRICS countries, South Africa and Russia.

Each year, investment demand is the critical supply and demand fundamental factor for the four precious metals. Limited liquidity in platinum and palladium can cause significant price moves when trends change. A sudden herd of buying could send prices significantly higher as low liquidity exacerbates price variance, causing moves to extreme levels.

GLTR is a diversified physical precious metal ETF product - At least three reasons for a comeback

The top holdings of the Aberdeen Physical Precious Metals Basket shares ETF include:

At $81.93 per share on October 3, GLTR had around $904 million in assets under management. GLTR trades an average of 29,186 shares daily and charges a 0.60% management fee.

At the end of Q3, the precious metals sector of the commodities market was 12.32% lower since the end of 2022.

The chart highlights the 5.7% decline from $89.23 at the end of December 2022 to $84.15 per share on September 29, 2023. GLTR had outperformed the sector over the first three quarters of this year because of its over 60% exposure to gold, up 2.18% over the nine months.

Meanwhile, GLTR fell below the March $82.03 low for 2023 on October 3. While low lows are likely, I favor buying abrdn Physical Precious Metals Basket Shares ETF on a scale-down basis, leaving plenty of room to add on further declines. Precious metals are not ordinary commodities, and the potential for a significant rally remains high in the current environment.

The Hecht Commodity Report is one of the most comprehensive commodities reports available today from a top-ranked author in commodities, forex, and precious metals. My weekly report covers the market movements of over 29 different commodities and provides bullish, bearish, and neutral calls, directional trading recommendations, and actionable ideas for traders and investors. I am offering a free trial and discount to new subscribers for a limited time.