Written Commentary
GOLD / SILVER
The action in the gold market this week has been very impressive as the bull camp has seemingly managed to shift fundamental focus away from bearish influences and embrace fundamentals that are supportive. In our opinion, the ability to shift focus to embrace positive themes is a hallmark of a “bull market”. However, the bull case in gold is still tentative because fundamental headwinds of rising rates, periodic fears of global slowing and a lack of consistent investment inflow to ETF holdings. Fortunately for the bull camp, gold ETF holdings this week have reversed the early pattern of outflows and have now posted two large back-to-back daily inflows. Unfortunately for the bull camp in silver, ETF instruments yesterday saw another massive outflow of 5.1 million ounces which reduces the year-to-date gain to a mere 0.5%. Obviously, gold will remain responsive to financial developments flowing from equities, treasuries, currencies, and central bank dialogue. Furthermore, it seems that gold and silver will continue to see money flows from residual global bank contagion fears but a significant slide in implied US treasury yields this week adds a secondary supportive force for the bull camp. While we saw yesterday’s nearly unchanged close as a possible sign of a temporary blowoff top from the Wednesday rally, seeing prices rally significantly this week on what is likely to be the largest weekly trading volume since the days leading into the US Covid lockdown indicates the market can attract fresh buyers. Clearly, the silver charts are definitively less positive than gold but still favor the upward tilt. Unfortunately, as mentioned already investors have turned cool toward ETF instruments and silver is mostly missing out on flight to quality buying interest. However, the latest positioning report showed the net spec and fund long in silver at the lowest level since September last year, thereby leaving silver less vulnerable to massive stop loss selling and potentially holding some additional buying potential.
PALLADIUM / PLATINUM
While the platinum market this morning has started out with a positive extension up on the charts, outflows from platinum ETF holdings this week have been the largest in recent memory and the overall global economic outlook while improved remains suspect. Fortunately for the bull camp the latest CFTC positioning report showed the lowest net spec and fund long position since early October last year which could lower the magnitude of sudden stop loss washout actions and could also signal the market now has residual buying fuel potential on the sidelines. With the outlook for many physical commodities generally pointing down earlier this week and many charts saw damage this week the path of least resistance in markets like palladium remain down. In fact, palladium demand news has been absent for weeks on end and the trade has not seen credible production estimates from South Africa or Russia recently. Therefore, the fundamental condition in palladium remains in favor of the bear camp.
COPPER
In addition to a significantly oversold technical condition from this week’s high to low slide of $0.25, the copper market today has seen improvement in global economic psychology. Furthermore, copper has also seen the early signs of a return to a “pattern” of notable weekly outflows from Shanghai copper warehouse stocks. On the other hand, Bloomberg measurements of Chinese copper in bonded areas increased by 5100 metric tons this week, but that inflow was totally countervailed by the much larger 32,631-ton outflow of inventories from Shanghai exchange warehouses. It should also be noted that increased Chinese operating rates at fabricating facilities in China have jumped which is not surprising considering copper is entering the strongest Chinese demand season of the year. In fact, it should be noted that different product processing rates are on the rise suggesting demand or anticipated demand is spreading across different manufacturing sectors and products.
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