Written Commentary
COPPER
Fortunately for the bull camp, Shanghai and LME copper warehouse stocks showed minimal inflows overnight and the Chinese central bank injected liquidity into their financial system. However, some traders are disappointed the Peoples Bank of China failed to cut interest rates in their meeting today. On the other hand, China Evergrande Group overnight revised terms of restructuring of its international debt and while that could temper the real estate threat to the Chinese economy temporarily, the Chinese real estate sector is likely to remain a headwind for the Chinese economy. Therefore, suspect Chinese demand expectations leave the bear camp in control. While there is a supply threat from protests in Peru, the copper market does not appear to be interested in anything but prospects for Chinese demand.
GOLD / SILVER
Clearly, with the upside breakout extension overnight headlines in the Middle East continue to fuel both speculative and flight to quality buying of gold and to a lesser degree silver. Unfortunately for the bull camp gold and silver ETF instruments continue to see outflows, with the outflows from silver instruments this week significant with year today sales to date of 34.5 million ounces and yesterday the seventh straight daily outflow of silver ETF holdings. In retrospect, with gold rallying in the face of an upside breakout in US treasury yields yesterday, the flight to quality theme is clearly dominating the trade and that should continue to lift gold especially with expectations of Israeli troops moving into Gaza for what the media labels as a “ground war”. While some traders interpreted the Fed chairman comments yesterday as dovish in the near-term, the Fed chairman also indicated additional tightening could be in the pipeline.
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