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Silver Demand Expected to Rise


The weakening dollar gives the gold bulls the upper hand this morning. Although the depth of this bull move is questionable as many bond traders have cut their March rate cut probabilities to 70%, from 85%, sending US rates higher. With other nations potentially cutting interest rates more aggressively than the Fed, the dollar is at risk of staying stronger than expected, putting pressure on gold prices, even despite potential rate cuts. Gold bulls must take this shift in timing and probabilities seriously. On the supply side, Gold Fields announced the suspension of gold mining at Deep South, the third largest gold mine in the world, after a miner was killed in an accident. Costco has reported that it has sold about $100mn worth of physical gold to its members in the past quarter, as many investors shift their purchases to physical bullion, and away from ETFs. Silver prices bounced slightly following yesterday’s big drop below its trendline. Silver demand is now expected to rise this year on the back of demand for solar paneling, according to Bloomberg who cited rises in solar demand as outpacing drops in demand for silver from silver intensive consumer electronic goods.


China has been hit with another round of downgrades, with four large asset managers being downgraded by Fitch overnight. This put pressure on Chinese risk assets early in the overnight session, and gave copper bears the green light to sell the rallies this morning. The news out of China overnight was worrying as Chinese hiring salaries dropped by their largest margin ever, putting into question a rebound in domestic demand. At the same time, the Chinese Service PMI came in above estimates, rising to 52.9, its highest level in five months. This along with an expected large increase in Chinese fiscal spending this year, give copper bulls hope for a rebound in underlying demand. On the supply side, copper miners continue to curtail production as Codelco, the world’s largest copper miner, reported an 11% drop in copper production from last month.


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