Written Commentary
GOLD / SILVER
While the gold market did not forge a higher high for the move early today prices remain close to the breakout up price level. Unfortunately for the bull camp the dollar has also forged a 9-day high and appears to be positively correlated with other flight to quality instruments like bonds. Nonetheless, the gold and silver trade are not undermined by the dollar action and instead are embracing “war headlines”. In fact, gold, and silver managed gains last Friday despite a 6-day high in the dollar. However, inflation fears also drove money to gold and silver at the end of last week, which was at least partially the result of a rally in crude oil that at times surpassed $3.50 a barrel. In conjunction with the sharp gains in crude oil prices, multi-decade highs in various US consumer inflation components leaves the inflation theme in play.
PALLADIUM / PLATINUM
Palladium finished last week with a very damaging move on the charts, suggesting the bull camp has lost its control. Certainly, Palladium will benefit in the event of spiraling inflationary fears but in the near term the rising rate, sharply lower equities, and auto plant closures (due to protests) has fostered some near-term demand concerns. On the other hand, Russian Nornickel recently projected the world palladium market deficit would be 300,000 ounces this year and that should underpin prices. Obviously, the threat of supply lost by a Russian trade embargo would impact palladium more than platinum and therefore platinum could remain in a range bound by $1,056 and $1,000. The net spec and fund positioning in platinum is very modest which is not surprising for a range bound market. Platinum positioning in the Commitments of Traders for the week ending February 8th showed Managed Money traders were net long 7,426 contracts after decreasing their long position by 2,334 contracts.
COPPER
Entering the US trading session copper is boosted by strength in aluminum and nickel prices in Asia and undermined by iron ore prices from Asia. Early last week market chatter centered on the prospects of a “short squeeze” but instead the opposite seemed to happen at the Shanghai exchange. In fact, Shanghai copper exchange stocks on a weekly basis more than doubled with an inflow of 66,213 tonnes (+164%) and that went a long way toward killing the short squeeze story in London. Unfortunately for the bull camp, a Russian incursion of the Ukraine would likely be bearish initially from the fear of demand destruction.
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