Written Commentary
GOLD / SILVER
At least in the early going today, gold, and silver prices are under pressure as if markets have decided to track classic physical commodity market fundamentals. However, the markets have shown some bullish sensitivity to the prospects of fresh inflationary signals from US CPI this morning. The bull camp also has a US default in its quiver with yesterday’s talks at the White House failing to reach a deal. Obviously, seeing inflation hit expectations or register a hotter than expected reading will reduce the prospects the Fed will pause in their next meeting and that will likely exert pressure and or limit upside action. On the other hand, a hotter than expected inflation reading could rekindle classic inflation flight to quality buying of gold and silver, but the upward track could be fraught with volatility if the markets are presented with a significant jump in interest rates and a noted surge in the dollar. A supportive development for gold came from an increase in gold ETF holdings of 42,184 ounces yesterday, with holdings returning to “flat” on the year with the inflow. Similarly, silver ETF holdings fell by a scant 4,156 ounces and those holdings have also returned to “flat” on the year. In conclusion, the gold bulls need a CPI above 0.4% to spark a wave of aggressive inflation-based buying.
PLATINUM / PALLADIUM
With the significant range up extension of the bounce off last week’s low yesterday, and the upside extension this morning the platinum market appears on track to post new contract highs. Apparently, investors and traders view platinum as a positive mix of inflationary vehicle and possible physical demand benefactor. Recent daily platinum ETF flows have been supportive, and it seems that yesterday’s sharp range up rally in futures prompted a noted inflow to platinum ETF instruments. Unfortunately for the bull camp, the platinum market is becoming short-term overbought from a positioning perspective as the net spec and fund long last week was near the highest levels since March of last year and since the report was measured, prices have rallied $38.00. Not to be left out, the palladium market was pulled higher yesterday by the upside extension in platinum and palladium might continue to draft from platinum. However, fundamentals for palladium are not nearly as supportive as in the platinum market, but a large net short positioning in palladium presents a stronger technical bull case than in platinum. While palladium ETF holdings did not register a large inflow yesterday, the year-to-date gain in palladium ETF holdings is a very important 10%.
COPPER
In addition to fresh damage on the charts from a 3-day low, the copper market should see ongoing pressure from another moderately large daily LME copper warehouse stock inflow and from news that copper production in Peru (for the latest month available March) registered a sharp jump of 14% month over month. Even the demand side of the equation favors the bear camp today with a Dow Jones article overnight suggesting Chinese copper demand signals are concerning because of anemic industrial activity and low import statistics. Fortunately for the bull camp, economic copper demand concerns from outside China are not as important to the trade as copper demand signals from China. While an as expected, US CPI and certainly a below expectations CPI result could allow for a risk on rally in equities, we do not attach a large probability to that outcome. In short, copper prices should track in a positive correlation with equities today with equity market action temporarily a proxy for global copper demand prospects.
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