Written Commentary
GOLD / SILVER
Last week’s bank sector flight to quality incident appears to be dissipating, leaving June gold sitting $140 above the early March low. Sentiment in gold has shifted so bearish that reports of a tripling of Chinese gold imports through Hong Kong last month failed to support prices on their way down yesterday. Renewed weakness in the dollar failed to cushion gold and silver, and June gold seems likely to fall below $1,950 in the coming sessions. The March rally in gold was forged on a significant jump in trading volume and a 34,000-contract gain in open interest, and a series of failures on the charts could bring a wave of stop loss selling. The recent Commitments of Traders report showed a spec and fund net long in gold of 198,863 contracts, leaving the market vulnerable to long liquidation. Unlike gold, the rally in silver was forged on declining volume and open interest, suggesting that the magnitude of stop loss selling could be less severe.
PALLADIUM / PLATINUM
Platinum and palladium could also be vulnerable to liquidation pressures, with April platinum likely to fall below $950 and perhaps down to $933 if talk of higher rates and disinflation return. Fortunately for the bull camp, open interest has declined consistently since the major rally on March 13, which could mitigate the amount of stop loss selling. Investment interest this year has been stronger than in other metals, and the most recent spec and fund net short reached an extreme at 7,342 contracts.
COPPER
Copper held within a tight range overnight and extended Monday’s rebound slightly. As opposed to other commodities, copper appears to have the capacity to stand up to what feels like a downward bias in prices this week. Signs of positive Chinese economic activity continue to surface in anecdotal evidence, but the latest Bloomberg traffic report suggests decreasing congestion is becoming a trend. LME copper stocks were lower for the sixth straight session today, falling to their lowest level since early March. Fears of global slowing have moderated, but Chinese growth remains the question mark. No new scheduled Chinese economic data is due until Friday, leaving the market in a position to be dictated by daily global equity market action.
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