Gold Volatility Likely to Extend

GOLD / SILVER

With the dollar showing significant two-sided volatility last week, volatility in gold was clearly justified and is likely to extend early this week. In fact, with the dollar charts shifting up and the April gold chart producing damaging action last Friday, the path of least resistance is down in gold. Looking ahead, we suspect the US CPI report on Tuesday will be a major event for gold, silver, platinum, and palladium. In a twist of historical trade action, gold and silver bulls probably need softer than expected inflation readings to shake off last week’s setback. Unfortunately for the bull camp last Friday, gold ETF holdings fell by 3024 ounces and are 0.8% lower year-to-date. From a technical perspective, the February washout in gold prices has resulted in a significant drop in open interest and trading volume potentially an indication that downside action is being seen as against the overall trend. In another supportive recent development reports of improving Asian demand on price weakness should help gold and silver find solid support later this week. In fact, at the end of last week Chinese gold premiums continue to strengthen but seeing Indian demand show up on dips could be more important.

PALLADIUM / PLATINUM

While the recent surge in platinum ETF holdings has not garnered headline status, ongoing inflows should soon spark speculation of a return of investment interest. At the end of last week, platinum ETF holdings were up 1.9% year-to-date with inflows last week resulting in holdings reaching 2.36 million ounces versus 2.33 million less than one month ago. With a total global ETF platinum holding reading of 3 million ounces, continued inflows can change the global supply and demand condition. However, in the near-term, platinum appears to be on a liquidation track with last week’s washout resulting in a sharp decline in trading volume and open interest. With the palladium market smaller in scope than the platinum market, a year-to-date gain in palladium holdings of 4% is significant especially given total world palladium ETF holdings are only 465,301 ounces. In addition to early signs of a ramping up of investment demand this year we suspect March palladium is significantly oversold and could forge an exhaustion washout this week.

COPPER

Fortunately for the bull camp in copper, last week’s trend extending increase in Shanghai copper warehouse stocks has been offset by several global production issues. In addition to Freeport Indonesia suspending work at its Grasberg mine after flooding from heavy rains damaged facilities, the trade is also watching production disruptions in Peru at 2 major mining facilities. However, hope for improving Chinese demand has shifted into concern of softer demand, as demand has not picked up strong after the holiday. Therefore, some analyst to predict Chinese copper demand might not recover until the 2nd quarter. While March copper has built a shelf of consolidation support at the $4.00 level, hope for improved Chinese copper demand is being countervailed by evidence of rising physical supply inside China. Granted, LME copper warehouse stocks are nearing 24-year lows, but Shanghai copper stocks have virtually exploded with 5 straight weeks of 5-digit inflows. In fact, Shanghai warehouse stocks are at the highest level since 2020 and supplies are above normal seasonal levels of the last 5 years. On the other hand, there are signs of improving economic activity inside China with road congestion readings jumping and signs of increased refinery activity thought to be gearing up for domestic consumption.

Interested in more futures markets?  Explore our Market Dashboards here.