Written Commentary
COPPER
While there does not appear to be a specific event puncturing Chinese copper demand expectations, that mantra has combined with a severely overbought technical condition for a definitively bearish track today. However, the source of the reversal was likely price shock at Chinese factories given record pricing and to a lesser degree macro pressures from hawkish Fed news. The bearish bias is furthered by the lack of positive price response to a local lawsuit filed against Rio Tinto in the Papua New Guinea which could disrupt production. Ongoing volatility is justified considering recent record high pricing and significantly overbought spec and fund long categories in futures especially with dollar adversity and reduced delayed US rate cut prospects in lay.
GOLD & SILVER
While the declines yesterday in gold and silver were blamed on fear of hawkish statements from the last Fed meeting minutes, the declines this morning are the result of a realization of hawkish news from the actual release. Apparently, the Fed had a debate on whether policy was tight enough to bring inflation down as quickly as was hoped for and some policymakers were disappointed in the economic information they have seen since the March meeting. Therefore, a minimal higher high for the move in the US dollar adds to the liquidation bias in markets that were significantly overdone into the recent highs. In another slightly disappointing development yesterday, both gold and silver ETF holdings declined breaking a six-day pattern of inflows to gold and suggesting that small investors are not decisively bullish yet. Recent dialogue indicated buyers suffered price shock and are waiting for lower prices. In a supportive development overnight, the Peoples Bank of China reportedly added 225 tons of gold to its reserves last year which represents the largest annual purchase since 1977. In the end, the takeaway from the Fed meeting minutes is bearish and perhaps very bearish as a reduction in rate (cuts) prospects is disappointing but chatter of the need to hike rates gives the bear camp ongoing confidence today.
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