Written Commentary
GOLD / SILVER
A risk on attitude has returned to the market this morning, which could induce more selling in gold today, as traders move away from safe-haven investments to riskier assets like stocks. The banking crisis has eased, and this has pulled back the flight to quality impetus for the rally in gold earlier this month. Swift action by US and Swiss banking authorities has averted a full-blown crisis, but the trade is not convinced it is entirely over. Traders seem to be giving a 50% probability that the Fed will lift rates another 25 basis points at the next FOMC meeting, but expectations for further tightening have diminished lately in the wake of the banking crises. In the back of traders’ minds are fears that the Fed will overtighten and send the economy into recession. The sharp rally this month left the gold market in an overbought state and vulnerable to a correction.
PALLADIUM / PLATINUM
With managed money traders holding only a slight net long of 2,572 contracts of platinum in the most recent COT report, long liquidation selling may be kept to a minimum. We expect the market to take some of its lead from gold, which could pull the market lower if gold corrects sharply. However, a rally in the stock market could mitigate losses on ideas it would support autocatalyst demand. Managed money traders were net short 6,365 contracts of palladium in the recent COT report, suggesting the market is oversold. If a stock market rally takes hold today, it could support buying in palladium as well.
COPPER
If global risk sentiment continues to improve and bank anxiety continues to fade, copper could be a major beneficiary. May copper saw choppy two-sided action on Tuesday but finished the day in positive territory. A pullback in Chinese equity markets this week put pressure on copper on ideas it would weaken China’s demand outlook. However, LME copper stocks have fallen for seven sessions in a row and are at their lowest levels since early March, which suggests global demand is improving. Positive consumer confidence readings from the US, Germany, and France this week also lend support.
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