Written Commentary
GOLD / SILVER
At least to start today, gold and silver are tracking positive partially off a slight downside breakout in the dollar. With a range down move on Friday, the path of least resistance remains down in gold. In retrospect, the silver market shows significantly less liquidation potential than gold. However, last week, silver ETF holdings saw significant outflows indicating a moderation of investment interest and/or liquidation by “traders” possibly for short-term purposes. In fact, seeing silver falter last week in the wake of an extremely bullish Silver Institute assessment of supply and demand in the world silver market should be disappointing to both short-term and longer-term investor bulls. The forward forecast from the Institute projects a slightly lower 2023 deficit of 142 million ounces than in 2022 (because of the rate hike cycle), but they also concluded that consistently expanding investor interest could result in unending world supply and demand deficits. Translating the impact of silver ETF holdings on the market, the addition of 100 million ounces back to the all-time highs is the equivalent of 20,000 futures contracts with the silver market on Friday trading 81,741 contracts. With silver ETF holdings last week declining by 7.2 million ounces, it is clear investment sentiment at present is in a state of rebalancing. With the negative chart action at the end of last week, more fears of recession than growth and a split view on inflation, the bull camp currently has fewer bullish arguments than was present at the April highs.
PALLADIUM / PLATINUM
While the massive range up extension on Friday in platinum was impressive in its own regard, seeing the sharp gains in the face of lower gold action and negative global economic sentiment is even more impressive. Even though it might be premature we think the upward track in platinum can extend with buyers potentially entering the long side because of signs that platinum is set to regain a larger portion of its discount to palladium. With the substitution of palladium by platinum, in manufacturing the recovery in the Chinese economy is likely very important to the platinum bull camp. Obviously, the platinum market is approaching overbought territory with the market adding nearly $90 from the measurement of spec and fund long positions last week. In the end, the path of least resistance is up but volatility is likely to expand with the prospects of a hard setback expanded if last week’s negative economic sentiment extends and worsens.
COPPER
Despite a very supportive headline touting a 36% jump in Chinese electric vehicle registrations resulting in electric vehicles reaching 23% of all vehicle sales in China, the copper market this morning is not benefiting from Chinese copper demand hop. Given the downside breakout last week and declining open interest, we see the downside track continuing but losing momentum at the April low of $3.9355. Tight supply should continue to defuse losses off the macro condition with LME copper stocks 2705 tons away from 17 1/2-year lows. It should also be noted that Shanghai weekly copper warehouse stocks were down for the 8th straight week last week. Unfortunately for the bull camp LME copper warehouse stocks have posted a 2,000-ton inflow pulling LME copper warehouse stocks up from the vicinity of 2-decade lows.
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