Written Commentary
GOLD / SILVER
While it appears gold and silver have settled into sideways consolidation patterns, that is likely to end with tomorrow’s US CPI report especially if a slightly hotter December CPI reading is posted. However, analysis of the data is difficult given the potential for fractional change. The range trade is certainly justified considering that neither gold or silver has a definitive internal fundamental driven bias with prices of gold within proximity to all-time highs and the speculative positioning in gold futures and options leaving the market vulnerable to stop loss selling on violations of key support. With the US dollar posting a higher high yesterday and posting a higher low, and treasury prices likely to remain capped, the gold market could fail at the $2,025 level in the coming sessions. However, the gold market did manage to post brief rallies yesterday in the face of somewhat hawkish US Federal Reserve dialogue and that is impressive. Unfortunately for the bull camp we think it will take even lower prices to stimulate enough Indian bargain hunting buying to alter residual bearish sentiment and in turn build solid support. Looking ahead, Chinese new loans and the US CPI tomorrow will likely set the tone and trend of gold and silver for the rest of this month. Unfortunately for the bull camp, gold ETF holdings continue to decline, and the gold trade continues to hold a surprisingly burdensome net spec and fund long position in futures and options. While we see the silver market as slightly less vulnerable than gold to further long liquidation and the March contract has consolidation low support close at $23.00, it also lacks bullish arguments without a resumption of weakness in the dollar and or tumbling US treasury yields.
COPPER
Unfortunately for the bull camp, the March copper contract has not posted a lower low in the overnight trade. Furthermore, despite building discounts, a long pattern of daily LME copper warehouse stock declines and the prospect of a jump in Chinese new loans, March copper has consistently eroded this year and the March copper contract looks headed to the December lows down at $3.7290. Clearly, a disappointing Chinese new loan reading could see the copper trade replicate the sharp down action on Tuesday, especially with expectations for the Chinese data calling for a relatively large increase. However, it could be noted that Chinese equity markets remain in a downtrend with declines overnight roughly 0.5%. Another fresh bearish development from the overnight wires are signs that definitive declines in battery prices are providing spillover pressure to copper prices and other battery components. While Citi projected copper prices to hold/chop around current levels through the end of the month, overnight they indicated they see cyclical consumption of copper weakening further. In conclusion, with the violation of the 200-day moving average at $3.7660 earlier this week, the downtrend in copper is reconfirmed from a technical perspective. However, the copper trade could be nearing an oversold condition with as Bloomberg noted overnight, copper has closed lower for nine straight trading sessions.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
