Written Commentary
GOLD & SILVER
What goes up aggressively and makes a chain of new record highs holds the prospect of aggressive corrective action. In fact, if gold finishes the week at current levels, it will have dropped the most in a single week since last October. In retrospect, the pendulum shift on US interest rate policy back toward the Hawks, combined with a higher high in the dollar and a pulse higher in treasury yields, provides a bearish environment for gold and silver into the end of the week. However, if recent gains were partially the result of flight to quality issues, we suspect some bargain hunting buying will surface before the close today, but perhaps after additional declines. In a sign of ongoing bearishness, both gold and silver ETF holdings declined again yesterday. It should be noted that small investors have not joined the bull markets in gold and silver yet with both and silver ETF holdings year to date down by 5.5% and 0.7% respectively. Fortunately for the bull camp, global central bankers do not tend to “trade” their reserves, as the record run up in prices could prompt some bureaucrats to bank significant windfalls. In today’s action the bull camp will need a pendulum shift back toward rate cut prospects from a definitively disappointing US durable goods orders report. At least in the initial trade today, we leave the edge with the bear camp in gold.
COPPER
Like the precious metal markets, copper has managed to arrest the sharp slide overnight which began at midweek with disappointment over a further delay and or a reduction in prospects of a US rate cut. Fortunately for the bull camp, chatter in Asia expects the upcoming Chinese Plenum to present further housing support and reform in job rules which could rekindle optimism toward the Chinese economy which in turn could rekindle Chinese copper demand prospects. Not surprisingly, the copper market continued to slide aggressively yesterday as a series of chart support levels were violated, and more noted downside should be expected if close in support from yesterday’s low of $4.7435 fails to hold after US data.
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