GOLD / SILVER
While financial market uncertainty remains just under the surface, this morning’s newswires are devoid of fresh incendiary developments. However, gold is tracking slightly higher this morning anticipating an expansion of uncertainty following what will be a very critical and perhaps historical decision by the US Federal Reserve later today. The Federal Reserve needs to pause to help the economy but raise rates 25 basis points to continue the inflation battle which leaves a situation where it might accentuate uncertainty and fail to instill confidence. Either decision today will likely injure the Fed’s reputation. However, for the Fed to pause they will have to admit they were wrong, and a pause could send a signal the Fed is worried about the banking sector. Market expectations for the Fed today are mixed with many economists believing the Fed will pause, while others are thinking the Fed will follow through with a 25 basis point hike. In our opinion, the gold and silver trade reaction to the Fed decision could be extremely difficult to predict with the markets capable of shaping the outcome in a number of ways. With yesterday’s action, it remains clear that the gold market has detached from the trade with the US dollar, while silver seems to have a little more of a positive correlation with US equities. It will be important for the bull camp to see a significant jump in ETF holdings later this week in the event of a large washout in gold and silver prices today. While the lack of significant declines in silver yesterday could indicate the market is less vulnerable than gold to this week’s events, the market was not nearly as overbought and will likely favor its physical commodity market standing in the coming 12 hours.
PALLADIUM / PLATINUM
As in the silver market, the PGM markets have separated with gold and are tracking physical commodity fundamentals. However, the platinum market continues to be our long preference within the PGM complex, but volatility is likely to expand and potentially send platinum back to uptrend channel support down at $955. In our opinion, the bull camp in platinum needs a pause by the Fed, no news from the bank sector and gains in equities to finish the week on an upward track. Unfortunately for the bull camp, the net spec and fund long in platinum is material and could provide stop loss selling if the Fed sparks significant risk off sentiment today. While the palladium market lacks bullish fundamental capacity, the market is close to support and continues to maintain a moderately large net spec and fund short. Like platinum, the palladium market is a physical commodity likely to track with equities today.
Despite a lack of global optimism the copper market this morning remains near yesterday’s 6-day highs indicating a slightly positive tone to start what should be an extremely volatile trade. Positive developments overnight include higher Chinese equity markets and a 58% increase in Chinese copper scrap imports in February over year ago levels. Furthermore, reports of Chinese bargain hunting buying at this week’s low of $3.8550 and a net spec short position in copper gives the bull camp has internal market fundamentals and technical signals working in its favor. While the news of extremely high Chinese oil refinery activity is not always directly related to economic activity, that news certainly points to a possible recovery in the Chinese economy. It should also be noted that seeing Chinese bargain hunting buying on weakness could also be a sign of a growing economy.
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