Gold Interest Waning

GOLD / SILVER

We are a little concerned of a loss of upside momentum in gold especially relative to silver. Furthermore, we are concerned that the sharp jump in energy prices will prompt hawkish central bank dialogue which in turn could weigh on gold and silver prices. In fact, last week’s very modest hard-fought gains in gold were forged on a distinct softening of trading volume and that action was accompanied by falling open interest. Therefore, we suspect flight to quality longs are becoming impatient and/or recognize a pause in global economic uncertainty. In other words, gold interest is waning while silver as a physical commodity likely to benefit from better economic activity is in vogue. Last week gold ETF holdings increased by 284,798 ounces but remained 0.6% lower year-to-date. However, it should be noted that gold ETF holdings from the early March low of 66.6 million ounces reached a high last month of 68.3 million ounces. While gold ETF holdings have retrenched from that March high, seeing total gold ETF holdings rise above 69 million ounces could signal an upside breakout in investment interest, particularly if “risk on” sustains. In retrospect, the silver market’s low to high rally last week of $1.27 suggests a temporary leadership role and a slightly overbought status. Evidence of the leadership position by silver is its ability to gain on gold for 9 straight sessions! In conclusion, silver looks to benefit if global equities and treasuries continue to rally while gold appears vulnerable to a setback.

PALLADIUM / PLATINUM

Clearly, the platinum market followed physical commodity market influences on Friday tracking higher with “risk on” propelled equity market gains. Unfortunately for the bull camp, the gains over the prior 3 trading sessions saw trading volume fall off sharply as if prices near $1,000 were deemed expensive. However, with platinum ETF holdings increasing by 1,423 ounces on Friday and increasing their holdings by 6,968 ounces last week, the year-to-date gain in holdings is approaching 2%! Fortunately for the bull camp, the net spec and fund long position last week was less than half of the net spec and fund long posted in the first week of the year. The platinum trade is likely to see an impact from US vehicle sales readings later this week and all physical commodities should see an impact from upcoming international inflation-based scheduled reports. Last week the platinum market saw several bullish platinum price forecasts with Commerzbank projecting $1,150 prices this year and $1,250 by the end of next year. From a technical perspective the palladium market is significantly oversold from a spec perspective with the market net spec and fund short positioning within 200 contracts of a record short.

COPPER

With LME and Shanghai copper warehouse stocks continuing in a general pattern of outflows and given the vast improvement in economic psychology from two weeks ago, the bull camp has an edge from supply and demand perspectives. However, not all supply news last week was supportive with SMM copper inventories in major Chinese markets increasing by 9600 metric tons. It should also be noted that last week the market saw a 3.7% year-over-year decline in February copper output from Chile which is the world’s largest copper producing nation.

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