Written Commentary
GOLD / SILVER
Not surprisingly, the markets expected to be impacted by today’s critical US inflation reading (PCE) and they have forged tight trading ranges again overnight as many traders avoid implementing fresh positions in front of what could be a critical trend deciding report in the form of US PCE later today. Fortunately for the bull camp, open interest in gold has come down significantly since the middle of last month, potentially suggesting the market found solid value earlier this month around $2,000. Unfortunately for the bull camp, a US PCE reading above +0.3% will likely relaunch the dollar sharply higher and set the stage for a return to $2,000 in April gold in the coming sessions. On the other hand, seeing the US PCE come in soft would at least temporarily resurrect US rate cut hopes which in turn would drive the dollar down and launch gold toward $2,075. Therefore, today’s US PCE report has the potential to spark significant volatility and perhaps signal the direction of the upcoming trend. However, an uneventful PCE release combined with positive jobless claims news could shift the bias in favor of the bear camp.
COPPER
We are somewhat surprised to see copper post a higher high today in the face of predictions that tonight’s Chinese manufacturing PMI reading will soften for a 5th straight month. Fortunately for the bull camp, two of three main Chinese equity markets forged gains of nearly 2% overnight and LME copper warehouse stocks have continued a pattern of significant daily outflows. However, with a fresh lower low yesterday, the copper market has likely become suspicious of a quick improvement in Chinese copper demand and some traders might be growing concerned about another large weekly inflow to Shanghai copper warehouse stocks tomorrow. Estimates for the Chinese manufacturing and nonmanufacturing PMI readings call for insignificant changes in both reports and call for offsetting results from manufacturing and service sector readings. It also seems that the copper trade wants and/or needs a shock and awe stimulus program as piecemeal efforts by the Chinese government over the last several months have failed to light the fuse of the Chinese economy.
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