GOLD / SILVER
With the dollar index posting a 3 day low early today, February gold has sparked to life and has regained its 200-day moving average at $1815.80. Apparently, a 2nd straight day of surging interest rate signals from the US treasury markets has been discounted by the gold and silver trade. However, the impact off interest rate action on gold and silver has been mitigated by a decision by the Bank of Japan to alter its yield curve control policy even though the bank has apparently decided to allow long rates to drift higher faster than shorter rates. Unfortunately for the bull camp, investors remained cool toward both gold and silver ETF instruments, with moderate outflows yesterday. Certainly, the trade sees some support from the potential for Chinese easing, but the PBOC held steady in their rate decision overnight. In our opinion, to ignite aggressive follow-through rallies in gold and silver (in addition to this morning’s run up) probably requires the dollar closing below the psychologically important 103.00 level! However, with the net spec and fund long position in gold (as of early last week) near the highest level since August the gold market is likely to become short-term overbought quickly. From another technical perspective, February gold has regained its 200-day moving average and it could be important for the bull camp to show they can manage a close above the M.A. today at $1,815.80. Over the last several weeks, silver ETF holdings have declined consistently with holdings last week falling by more than 8 million ounces and outflows yesterday near 1 million ounces. Therefore, silver remains out of investment favor and the trade is also concerned about softening physical demand in a slowing global economy.
PALLADIUM / PLATINUM
With another dramatic spike down failure in March palladium yesterday, the next downside target from the charts is the beginning of a gap on the weekly charts from March 2020 at $1,587. While palladium is under demand destruction pressure (primarily because of China slowing fears) into the low yesterday the March palladium contract was trading $280 an ounce below the level where the COT report registered a net spec and fund “short” of 854 contracts. Therefore, the palladium market is significantly oversold from a short-term perspective, but bullish fundamentals are nowhere to be found and the failure to hold above $1654 today could extend the slide quickly. Not surprisingly, the platinum market has also shifted into a down market with global slowing fears populating the headlines. Furthermore, investors remain negative toward Platinum ETF instruments with holdings yesterday declining by 8,866 ounces leaving holdings down 16% year-to-date. Recent uptrend channel support was violated on a close basis yesterday and positive fundamental arguments are absent.
In retrospect, the copper market continues to hold up impressively against a continuation of very concerning Covid infection headlines from China. However, if official death counts (only 5 on December 19th) are to be believed, the infection spike has had surprisingly low mortality rates. Nonetheless, fears of slowing Chinese industrial activity are surfacing and sentiment was injured further yesterday by a 10 year low in a Chinese business confidence reading. With the Panamanian government ordering First Quantum to develop a maintenance plan for shutdown of their mining operations the trade is presented with a supply threat from a copper mine capable of producing 300,000 metric tons of copper at full capacity annually which in turn is estimated at roughly 1.5% of global output. Clearly, the bull camp is clinging to the hope of Chinese economic stimulus as Chinese infection headlines continue to be very concerning. Fortunately for the bull camp physical copper inventories inside China fell by 12,400 metric tonnes over the weekend putting the estimated industry/commercial supply at only 81,900 metric tonnes.
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