Written Commentary
GOLD / SILVER
While the dollar has managed to reject a noted dip in the early action today the adjustment lower has sparked some optimism in gold and silver. However, outflows from gold and silver ETF holdings continued yesterday with gold losing 102,369 ounces and silver holdings reduced by 1.3 million ounces. Even though gold and silver yesterday saw some lift from the latest Chinese stimulus offering, the transaction tax cut was inconsequential for most physical commodities especially with economists overnight trimming their Chinese growth forecasts. It should be noted that the Chinese finance minister and the chairman of the national development commission have promised the Chinese legislature they speed government spending to counter the slowing economy. With the Chinese politburo meeting on the horizon, it is possible the finance minister and the chairman of the development board must show results or risk being replaced. Fortunately for the bull camp treasury yields have slipped lower thereby tamping down the fear of surging US rates following the Fed symposium last week. While some traders suggested yesterday’s strength in gold was the result of short covering, it is possible the markets were relieved the Fed did not directly threaten higher interest rates last week. However, seeing the US seize an Iranian oil tanker anchored in the Gulf of Mexico probably fostered some flight to quality buying interest.
PLATINUM / PALLADIUM
With the surprisingly large range up rally yesterday followed by a higher high early today, the bull camp has clearly seized control of the platinum market. While it is difficult to ascertain the reason for the sudden spike up move, traders speculate the potential for a reduction of taxes on vehicle sales in China could help stir demand for auto catalyst feedstocks. Not surprisingly, the sharp gains in platinum over the last several weeks have started to stimulate investment with platinum ETF holdings with yesterday posting an inflow of 2,524 ounces raising the year-to-date gains in holdings to 4.6%. Unfortunately for the bull camp recent gains have resulted in aggressive liquidation of open interest, suggesting a portion of recent gains might have been classic short covering. Another reason for the rally yesterday is news that a major platinum mining company resumed paying dividends after 10 years and that should provide optimism toward demand as the company apparently expects good demand and profitable prices ahead.
COPPER
With a developing pattern of lower highs and lower lows, residual concern for the pace of the Chinese economy and the absence of reaffirming tight supply news, the path remains down in copper. In fact, despite another Chinese government economic support program, copper prices yesterday failed to respond indicating fear of slumping Chinese copper demand remains entrenched. While the latest Chinese stimulus package was not seen as a short-term supportive influence on the economy more programs are expected. It should be noted that the Chinese Finance Minister and a key development minister have been tasked by top leadership to “speed” assistance to the economy and that task is given priority because of an upcoming of top Chinese leadership meeting. Therefore, we see the copper market vulnerable to further downside work.
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