Written Commentary
GOLD / SILVER
Fortunately for gold and silver, bearish influences from the dollar and treasuries abated at the end of last week but unfortunately, adverse trend action in those markets have returned and are likely to keep gold and silver under liquidation watch. In fact, this morning global markets were rife with concerns that interest rates were set to remain high for longer firming the dollar and undermining most physical commodities. Since gold has not been receptive to flight to quality buying interest from uncertainty in the marketplace for some time, the looming US debt ceiling deadline and renewed financial problems in the Chinese property sector more likely to prompt selling than buying. In a bright spot last week which could suggest more favorable demand prospects in India and China, the Indian gold discount early last week reversed and posted an eight-dollar premium. A moderate portion of the significant Chinese premium is the result of significant volatility in the Chinese currency. In the latest COT positioning report, the managed money position in gold was 40,000 contracts above the smallest net long since February. While the silver market has displayed positive price divergence with gold recently and appears to be less impacted by outside financial market forces, it probably won’t be immune if gold comes under noted pressure. Fortunately for the bull camp in silver, the net spec and fund long position is balanced if not low compared to the last four months.
PLATINUM / PALLADIUM
While the platinum market at times over the prior three weeks has shown significant recovery capacity, without a revival in global economic optimism and/or an improvement in sentiment toward the Chinese economy, the market appears to have encountered solid resistance at the $950 level. While more of a psychological negative than a physical threat against demand, the autoworker strike combined with fears of recession in China leave the bear camp with more ammunition than the bull camp.
COPPER
With renewed trouble among China’s property sector and a higher for longer interest rate mantra returning the path of least resistance is down in copper. While the copper market fund positioning adjusted for the slide after the last positioning report was measured, the market may have the potential for a net sale of 15,000 contracts before becoming “mostly sold out”. In retrospect, bearish supply news sits on the back of the market following constant daily inflows to LME copper warehouse stocks this month and from signs of increased production last week from Peru. There was a mitigating supply development last week with weekly Shanghai copper stocks falling by more than 10,000 tonnes. However, copper demand improvement needs to be definitive to shift the tide away from the downside.
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