Written Commentary
GOLD / SILVER
While outside market pressures are not distinctly bearish this morning, the dollar is near a four-day upside breakout and treasury yields are drifting higher. So far this week, the primary focus of the gold and silver trade has been on bond yields, with less sensitivity to the dollar. Nonetheless, strength in the dollar following positive US scheduled data yesterday and renewed fears of a European recession indirectly pressured gold yesterday. Fortunately for gold bulls, European recession concerns were moderated today following a sweep of better-than-expected German IFO readings. However, international pressure on Israel to pause the bombardment of Gaza to allow aid to flow is likely to be amplified by complaints from the Arab world, thereby keeping a measure of flight to quality buying interests in the gold market. Clearly, the potential for significant flight to quality buying interest in gold and silver hangs in the air with a spread of hostilities in the Middle East easily capable of launching gold back to $2050. Given the intensity of the situation in the Middle East, Gold is likely to track tightly with crude oil prices with the oil market likely to respond to developing events faster than gold. In fact, given the pattern of lower highs and lower lows in silver following last week’s upside spike, silver is obviously tracking physical commodity market fundamentals instead of financial/flight to quality forces like gold.
COPPER
We are surprised that the copper market has failed to hold a nine-day high in the early action today, as China provided more details on a series of supportive measures from the national government to local governments. In addition to securing fresh loans for local governments to repair infrastructure, the Chinese central bank stepped in to provide initial assistance to local governments holding excessive debt. However, some economists think the moves by the Chinese government were simply patching holes in a troubled economy, with actual stimulus underwhelming. However, it should be noted that the persistent pattern of daily inflows to LME copper warehouse stocks appears to have subsided this week with draws pulling down stocks by more than 5,000 tons. While the primary focus of the copper trade today will remain on the ebb and flow of news on the Chinese economy, the trade will show some reaction today to US new home sales which are expected to tick higher.
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