GOLD / SILVER
Despite a minimally higher US dollar to start today, both gold and silver have clawed out modest gains. With the gold market earlier this week showing signs of benefiting from flight to quality uncertainty, it is possible the market will attract more flight to quality buying off the US budget standoff. However, in the past ugly US debt ceiling battles (seemingly counterintuitive to fundamental reasoning) have fostered a flight to quality interest in the US dollar. Fortunately for the bull camp, the dollar has shown little recovery action recently even in the face of Dollar bullish developments. Furthermore, gold has the benefit of residual optimism from comments this week from a Fed member indicating he was now in favor of a smaller 25 basis point rate hike in the next meeting. In the silver market, technical action this week indicates the silver bull case is not as strong as the bull case in gold with the March contract suffering a steep $1.40 break from the high. Going forward, we suspect gold will remain relatively stronger than silver and certainly more likely to respect key chart support levels. Furthermore, from a technical perspective, the action in the gold market this week (April gold) showed gold avoiding a significant setback despite a temporary bearish shift in key fundamentals on Tuesday and that might indicate bargain hunting buying is present on weakness. It should also be noted that volume and open interest in gold declined on this week’s dip, potentially indicating a lack of formidable interest in pressing the short side, and more importantly returning residual buying fuel to the market. While we expect gold to continue to take most of its daily direction from outside financial market action, a report yesterday indicating Chinese gold production last year increased by 13% certainly dents the bull case.
PALLADIUM / PLATINUM
Like other precious metal markets the platinum market tempered the definitive negative impact from serious damage on the charts from yesterday’s spike low with a noted bounce ($26) into the close. However, a general risk off vibe remains in many physical commodities and equities this morning leaving a layer of fundamental resistance hanging over April platinum. Since there has not been a significant decline in open interest this week and or declining volume on the large decline that could indicate the washout has not run its course from a technical perspective. While we think yesterday’s low at $1,015 is a possible low, the slide yesterday pierced uptrend channel support and without a 180-degree shift in economic sentiment, the bear camp retains an edge. Certainly, seeing palladium reject a spike low to the lowest level since December 23rd, increases the possible, we have seen a technical signal of a low. A minimally supportive overnight development came from an inflow to palladium ETF holdings of 1,526 ounces which means palladium ETF holdings are the only precious metal market to have a net inflow this year. In the end, we are more confident that some form of value zone has been found on the charts than we are of the market’s capacity to consistently trade above $1,800.
While the trade remains confident that extremely tight global copper supplies will support and drive copper prices even higher, a massive 37,000-ton weekly inflow to Shanghai copper stocks is the 3rd straight week of large inflows and that is a significant change in the supply environment! In our opinion, the trade has yet to abandon the view that global copper stocks will continue to tighten but given the rise in Shanghai copper stocks to 137,000 tons, the trade will probably become more sensitive to the prospects of deteriorating demand. From a short-term trading perspective, the copper market early last week held a relatively small net spec and fund long position, but since that report the market has posted a low to high spike up move of $0.27 likely exploding the net spec and fund long to a level which should increase the prospects that this week’s spike high was an intermediate top. In fact, the CME indicated that copper options yesterday posted record open interest in a possible signal that the market is overbought. While South American supply concerns remain in place, the copper trade has widely accepted those supply threats and the bull camp needs fresh supply-side fodder and or an improvement in macroeconomic sentiment to respect current support of $4.1680.
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