The gold and silver markets have been perking up lately which happens to have coincided with the Fed’s talk of removing stimulus from the domestic economy. Logically, talk of higher interest rates has spurred interest in portfolio re-allocation towards gold and silver as investors attempt to get a jump on the beginning of a structural shift towards inflation. The result of this is that gold has rallied about 11.5% year to date and silver is up nearly 20%. Much of this rally has been technical in nature, as the markets have moved beyond some key chart points. Technical levels are always important in short-term trading. However, the fundamentals suggest that this rally may be petering out.
The recent bout of record breaking low temperatures has led to an obvious increase in the demand for natural gas and pushed delivery prices up to $4.40 per million metric British thermal units (mmbtu). These are the highest prices we’ve seen since the heat wave and drought from the summer of 2011. In fact, the Energy Information Administration reported the largest natural gas draw for the week of December 13th since they began tracking it in 1994. Furthermore, many analysts expect to break this record yet again with this week’s report. However, in spite of the recent strength in the market, I believe that there are several structural reasons why this rally won’t last and that the pricing of forward natural gas will head lower from here.