Written Commentary
GOLD & SILVER
While we understand the premise, seeing gold and silver explode on the upside from a revival of US rate cut hopes appears to be an overreaction. Earlier this week, the CME Fed watch tool did not have a probability of a rate cut above 50% for any meeting through September and yet the improvement in rate cut prospects in the wake of the precious metal rallies this morning is in a mere percentage points. Certainly, it is possible that the situation in the Middle East is prompting speculative buying ahead of the weekend and it is also possible that the Biden administration levy of tariff on Chinese electric vehicles could spark a reaction from Beijing and the potential for a trade war. Obviously, the technical picture shifts aggressively into the bull camp after seven days of sideways chop, which might have reduced a very large net spec and fund long held into the middle of April thereby allowing the sharp recovery from last week’s low. With the gold market rising sharply yesterday before the announcement of a US tariff on Chinese electric vehicles overnight, increase rate cut sentiment appears to be the catalyst this morning. Gold and silver are also likely drafting support from improved Chinese economic news earlier this week as China remains the largest consumer of gold. It should also be noted that the sharp gains in gold and silver and the sideways action in the dollar have unfolded despite hawkish Federal Reserve commentary late yesterday from the San Francisco Fed. Even the silver market is catching favorable press coverage this morning as it should with the overnight upside extension resulting in a silver rally of almost 3 dollars since the beginning of May.
COPPER
Despite a US announcement to impose tariffs on Chinese and LME cash to futures spread pricing signaling more than adequate prompt supply, the trade is embracing longer-term expectations of significant global copper supply shortages. In fact, the contango in the London market posted the widest spread since 1994 apparently because of expectations the Chinese will dump 50,000 tons of copper onto the market this month and potentially drop another 50,000 tons onto the market next month. In retrospect, improved Chinese economic data justifies the recovery especially after weeks of sideways chop and a high to low washout this week of $0.14. While LME Copper stocks posted a minor decline of 925 tons overnight, Shanghai copper warehouse stocks increased by 2,036 tons, but that news is clearly overshadowed by a plethora of bullish headlines.
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