Written Commentary
PRECIOUS METALS
Clearly, news of a sharp jump in Chinese November gold imports and a weak US dollar have not provided improved sentiment toward gold and silver this morning. In fact, despite Chinese “net” gold imports through Hong Kong in November increased by 115% from 15.4 tons in October to 33 metric tons in November and yet gold is soft early. Furthermore, total Chinese gold imports via the Hong Kong trading hub were up 60% at 45.2 metric tons. At least in the near-term sharp increases in US interest rates looks to dominate over rising flight to quality concerns from the approach of the US debt ceiling. Perhaps gold is facing end of year profit taking and may not see buying interest from the US debt ceiling fiasco until late this week. On the other hand, seeing February gold return to levels below $2600 could spark bargain hunting buying ($2,600 has sparker noted bargain hunting buying two times since Mid-November) especially if the dollar continues to plummet. At present gold has logged a return of 27% this year but we suspect action in the coming days will reduce that return. It should be noted that the gold market posted one of the largest annual gains of physical commodity markets! It is also possible that a trade below $2600 (brining prices down $230 from the late October high) could spark technical buying given the markets respect for that level throughout the 4th quarter.
COPPER
While the copper market has seemingly entered a fragile uptrend pattern, fundamental arguments favor the bear camp. However, the market could draft minimal support from expectations of a positive (which would be three straight monthly gains) Chinese December manufacturing report later this week but that was offset by news that Chinese industrial profits this year were the worst in decades. On the other hand, the Chinese have reduced a copper import tariff which could help their import demand. From a big picture perspective Chinese Shanghai exchange stocks remain very tight despite a down trend busting inflow last week of 3,308 tons. It should also be noted that Chinese smelters are reportedly poised to reduce first quarter smelting charges and implement output reductions. Nonetheless, at the end of last week, spot Shanghai copper market pricing weakened, reportedly from soft physical demand leaving the bear camp with a demand edge to start the new trading week.
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