Written Commentary
PRECIOUS METALS
With interest rates falling and the dollar reversing, gold and silver should see early aggressive selling interest metered. In fact, with a long list of nondollar currencies showing renewed strength (especially the Indian rupee and Chinese yuan) a measure of bargain hunting buying could be seen with a retest of initial support in December gold of $2650. Unfortunately for the bull camp, gold mining shares have seen pressure overnight and some stock analysts have downwardly revised their share price targeting. Clearly, flight to quality longs see the nomination of the potential incoming treasury secretary as a bearish development as gold and silver declines out of the box are outsized given another developments. However, last week gold ETF holdings flatlined around 65.1 million ounces and currently sit 220,000 ounces below the November high of 66.3 million ounces. It should also be noted that silver ETF holdings have flatlined recently at 849 million ounces, which is 7 million ounces below the November high of 856 million ounces. Looking forward, the gold and silver trade are likely to remain under the control of technical selling and from a decline in economic uncertainty until critical US inflation data flows on Wednesday.
COPPER
Fortunately for the bull camp last week’s slide in copper was forged on declining open interest and somewhat soft trading volume potentially indicating dissipating short side interest. In fact, the consolidation provides two key support levels of $4.061 and then again down at $4.0505. Adding to the potential for a solid consolidation low is tightening exchange supplies particularly in China. LME copper warehouse stocks declined by 1550 tons overnight and that combined with the sharp decline in Shanghai copper warehouse stocks last week of 10,229 tons should underpin copper especially with Shanghai copper warehouse stocks in a definitive contraction mode. The copper market should be supported as result of the $124 billion Chinese central bank liquidity injection especially with China indicating they will “step up other countercyclical measures to improve the economy”.
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