Written Commentary
GOLD / SILVER
The gold market simply remains fundamentally out-of-favor and has bearish charts again this morning. While the selling yesterday was reportedly from the hawkish Fed chairman dialogue, that is unlikely the source of today’s noted weakness as the gold market recovered and closed in positive territory yesterday after the Fed news yesterday. Even though the gold market has not shown consistent interest in flight to quality issues, we see a major financial and economic market decision in the coming seven days. In our opinion, very poor 30-year US bond auction results yesterday have sparked concern over the out-of-control US deficit and this time Washington maneuvering is likely to result in a credit rating downgrade. However, it is possible that the historic selling of US treasuries since the beginning of September is not the result of bond vigilantism and therefore US interest rates might not explode again. On the other hand, there does not appear to be a currency to hide in, the equity markets are likely to plunge, and money might not have a choice besides gold. However, there is an adage “beware of the analyst who says this time will be different” with the world signaling its patience has run out on US debt. On the other hand, two very prominent senators, a list of US Federal Reserve members, a member of the Joint Chief of Staff, yesterday’s extremely poor US 30-year auction, and perhaps most importantly the massive and compacted jump in long-term yields gives the current situation an impressive pedigree.
COPPER
Not surprisingly, the copper market has extended this week’s liquidation following another week of disappointing Chinese economic news, signs of softening of the US jobs market, and generally hawkish central bank interest rate dialogue. Continued weakness in European manufacturing and industrial economic data and a plethora of anemic UK growth readings overnight extends the bearish tone in the copper trade today. In one of the very few bullish developments, Shanghai weekly copper stocks dropped 14% overnight to 34,846 tons. This marks the lowest Chinese warehouse stocks since September of 2022. Furthermore, LME copper warehouse stocks have declined in 13 of the last 15 sessions and that should partially limit the negative impact of the 2,775-ton inflow to LME copper warehouse stocks yesterday. The price action next week might revolve around worries over a possible November 17th government shut down, but the debt issue has the potential to keep the bears in charge of copper prices.
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