Outside Markets Pressure Gold & Silver

PRECIOUS METALS

The path of least resistance remains down in gold and silver with outside markets (treasuries and the dollar) applying consistent fundamental pressure. Not surprisingly, the trade no longer sees the widely anticipated US rate cut as a key supportive issue. We suspect the gold and silver trade is looking beyond this week’s FOMC decision to a much less dovish environment than was in place into the all-time high gold rally back in late October. A clear sign of low interest rate fatigue in the bull camp is the inability to avoid selloffs in the face of multiple international central bank rate cuts. On the other hand, we see the totality of global macro flight to quality interest declining with many hotspots settling under boil status. We also suspect that Indian buyers have either largely covered seasonal needs or want moderately lower pricing to step back into the buy side. Evidence that Indian demand has temporarily peaked is seen from the record November gold import tally of $14.8 billion followed by expectations of December gold imports of only $5 billion. Further disappointment for the bull camp arise from a lack of strong Chinese gold buying especially following recent discounts as high as $25 an ounce. However, Indian dealers this week are offering a discount of nine dollars up from two dollars. Going forward, the bears should be emboldened by continued liquidation of gold and silver ETF holdings with gold sales yesterday of 272,000 ounces pushing gold holdings to the lowest level since August 22^nd. Similarly, the trade saw silver sales yesterday of 10.3 million ounces. The liquidation in silver ETF holdings yesterday was severe with four straight days of liquidation, and yesterday’s liquidation the biggest single day decline since March.

COPPER

With the downside breakout extension this morning, the copper trade has clearly given up on the hope of improved Chinese demand but more importantly has seen the focus of the trade shift to oversupply! In other words, despite a near-term “tightness of global exchange warehouse stocks” the trade is looking forward to surpluses in 2025. In fact, McQuarrie Bank expects production to increase by 5.4%, contributing to a global surplus of 300,000 tons. With the copper market fully discounting Chinese attempts to re-create confidence in their real estate sector quickly the bias in the copper trade should remain bearish. Clearly, potentially bullish developments like the Chinese Premier calling for urgency in implementing economic stimulus measures continue to be lost on the trade.

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