Written Commentary
GOLD / SILVER
Fortunately for the bull camp in the gold and silver, the upside breakout extension in the dollar overnight has been offset by a minimal decline in US treasury yields. However, the charts in the dollar project higher action ahead and the US economic reports slate today is very active potentially rekindling rate cut timing debate. In the end, the dollar is underpinned, and gold is pressured from Fed Gov. Waller’s comments yesterday cautioning the Fed against rushing to cut rates before establishing inflation has been slayed. While the gold and silver markets have not tracked classic physical commodity market fundamentals tightly, five-year lows in Chinese stocks and a lack of confidence in China will likely keep physical gold demand soft which in turn increases the importance of upcoming gold demand signals into the Chinese New Year holiday. Fortunately for the bull camp, weakness in Chinese equities, a lack of confidence on the ground and what appears to be a power vacuum has increased expectations for a Chinese stimulus package. In the end, Chinese stimulus might only slow the erosion in gold and silver prices with action in the dollar the ultimate arbiter of gold price direction.
COPPER
With Chinese equity markets posting five-year lows, the dollar showing signs of posting further gains, a global risk off mentality in place, news of higher copper production from Antofagasta and fresh damage on the charts favors the bear camp today. Antofagasta fourth quarter production came in at 191,500 tons versus estimates of 182,189 tons. However, a supportive force for copper came from the supply side of the equation yesterday as Barrick Gold’s fourth quarter copper production decreased 4.7% on a quarter over quarter basis. Clearly, sentiment inside China continues to deteriorate but that has also increased chatter of a potential Chinese stimulus announcement. However, global markets have an entrenched negative view toward the Chinese economy and a mere rate cut and or assistance to property developing companies is unlikely to alter market sentiment. Therefore, Chinese copper demand fears remain front and center and Chinese trade data tomorrow will represent a major junction for the copper market.
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