GOLD / SILVER
Needless to say, fear toward the global banking sector remains in place into the new trading week with flight to quality instruments like gold and silver clearly remaining in vogue. While the purchase of Credit Suisse by UBS for $3.2 billion calms fears slightly, in the 2008/2009 financial crisis, we did see buyers of embattled companies become embattled themselves. With a contraction in German producer prices and the prospect of a pause by the US Federal Reserve on Wednesday, interest in gold and silver should remain firm. However, investment interest in gold and silver in the form of ETF holdings showed significant outflows last Friday, perhaps in a sign of profit-taking by investors. For now, it is no longer a question if the money flowing into gold is primarily the result of uncertainty over a contagion in either the US or global banking sector. While gold and silver generally showed little response to strength and weakness in the dollar at times last week, the very poor close in the dollar last week clearly shows some market expectations for a pause in rate hikes from the US Fed later this week. Certainly, significant declines in implied Treasury futures yields have been an added source of lift for both gold and silver. In fact, the silver market has reversed its charts significantly and has come alive and begun to track with gold. Obviously, signs of trouble at any other financial institution beyond the three banks currently fostering anxiety, (Silicon Valley Bank, First Republic, Credit Suisse) will instantly inject and likely accentuate flight to quality buying of gold, silver, and US treasuries.
PALLADIUM / PLATINUM
In a slightly disappointing early trade for the bull camp, platinum prices are stuck in the lower half of Friday’s range and trading in negative territory despite range up action in gold. Clearly, the PGM markets are not primary flight to quality instruments tracking closely with gold which suggests the focus of the PGM trade remains on the growth or lack of growth in the global economy. Given the failed rally on Friday it is not surprising to see platinum ETF holdings declined by 5,363 ounces on Friday with holdings on the week declining by 31,072 ounces. While the platinum market has tried to track higher with gold over the last week, the two markets have not linked up consistently in 2023 and do not appear to be poised to link up again this week. The palladium market has also failed to respond to strength in gold, silver, and treasuries but the market has built a shelf of solid support at $1,349.
While the trade was not expecting the Peoples Bank of China to reduce rates, no action from the bank to feed its recovery discourages would-be buyers and emboldens interested sellers. As in many other physical commodity markets, ongoing problems in the global banking sector has increased economic headwinds and thickened resistance over many physical commodities like copper and energies. Reports from last week indicating scrap copper sellers stepped back from sales provides minimal supply-side support in a market focused on the prospect of sagging physical demand. Fortunately for the bull camp, last week Shanghai copper warehouse stocks forged their 2nd straight large weekly outflow thereby tempering Chinese demand fears from ideas that supply was “backing up” inside the country. Relatively speaking, global copper supplies are still tight historically, even though they have rebuilt modestly over the last two months.
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