GOLD / SILVER
With the gold market adding to yesterday’s impressive reversal without apparent support from financial market anxiety and definitive weakness in the dollar, it is possible that the market is benefiting from longer-term position buying. While any number of outcomes can be gamed from the latest change in Fed policy, the gold market seems to think the Fed is “handcuffed” in its inflation fight because of the need to tread lightly in the wake of the bank scare. We suspect a bullish upward revision in a Goldman gold price forecast has also added to the speculative buying wave, especially because Goldman thinks gold has become “the best hedge” against financial risks. Goldman predicted that gold prices would reach $2050 in the coming 12 months which is not an overly aggressive target. From a technical perspective gold action might be pulling in fresh buyers with gains on the month potentially set to reach the highest monthly gain in several years. However, the surge in gold prices combined with a relatively low value of the Yen resulted in retail gold prices hitting a record high in Japan today and that could discourage some buying. In retrospect, we are surprised that gold and silver managed to avoid a significant washout following a 25-basis point rate hike from the Fed, especially with the Fed indicating some additional tightening may be required.
PALLADIUM / PLATINUM
While platinum prices are trading higher this morning, the magnitude of the gains indicate the market is not currently as bullishly sensitive to inflation prospects as the gold market. However, platinum is trading higher in the face of a modest outflow from platinum ETF holdings yesterday. While we give the edge to the bull camp today, the platinum market remains vulnerable to corrective action unless risk on psychology spreads and intensifies today. Even though we have been less bullish toward palladium than platinum (most times outright bearish), given a very significant trading range and rejection of a downside move with a strong close yesterday, that should give technical credence to the early March lows becoming solid consolidation low support.
We suspect the lack of significant upside extension in copper prices this morning is a function of the market temporarily getting ahead of its fundamentals. Nonetheless, the bias remains up especially with the market maintaining a net spec and fund short and LME copper warehouse stocks seemingly settling back into a drawdown pattern. Clearly, the copper market was already sensing the improvement in the Chinese economy and in Chinese copper demand as a minor all clear from the financial sector (even if temporary) resulted in copper ranging sharply higher yesterday. As we have indicated earlier this week, and in other physical commodity market coverage, there are signs of increased economic activity inside China. In addition to increased traffic congestion readings, signs of tightening physical copper stocks inside China and Asian bargain-hunting buying earlier this week, the Chinese economy might be coming to life. While the trade should derive support from news of lower production from Poland’s KGHM for February versus year ago levels, the International Copper Study Group released a 103,000-tonne surplus reading for January yesterday leaving supply and demand news somewhat countervailing.
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