Written Commentary
GOLD / SILVER
While part of the gains this morning in gold and silver prices are attributable to a slightly positive track in all physical commodities, we think flight to quality buying continues because of growing signs that First Republic Bank might not survive. Apparently, a first quarter deposit outflow of $100 billion surprised the trade and shares in the bank fell precipitously which revitalizes bank contagion fears. Adding into the bull case is the prospect of a slight tempering of fear of next week’s FOMC meeting as the pattern of soft US scheduled data this week has extended and is expected to continue today. While China posted a 1.9% first quarter increase in gold production, the country also reported a larger gain of 12% in gold consumption. The increase in Chinese first quarter gold output resulted in 85 tonnes of extra production while overall gold consumption was at 291.6 tonnes dwarfing the increase in supply. In retrospect, seeing gold waffle around unchanged yesterday in the face of strong demand signals from China and in the wake of a noted decline in US treasury yields should be disappointing to the bull camp. Seeing silver break sharply yesterday was not surprising given the ongoing negative view toward most physical commodities. However, July silver rejected the washout and closed more than $0.50 above the spike low in a possible sign of a technical bottom. Limiting silver on the upside is a 5.1% increase in 1st quarter Fresnillo PLC silver production to a total output level of 13.1 million ounces. We see silver remaining vulnerable unless the early positive commodities vibe is accentuated by a surprisingly strong equity market rally.
PALLADIUM / PLATINUM
With a 3-day range in July platinum of $75, a 24-hour recovery of $42 and a 2,237-ounce inflow to platinum ETF holdings yesterday, the bull camp appears to have regained control. Underpinning platinum prices above the new pivot point of $1,075 is news that Amplats first quarter platinum production came in at only 416,800 ounces which is a 6.2% decline relative to last year. While we see credible support at $1,075, recent volatility could see the market temporarily slide below that level. The noted failure in palladium prices yesterday took place despite a first quarter decline in Amplats palladium production of 6.2% putting their output at 278,100 ounces. The bull camp should be revitalized by a continuation of the bounce off the low yesterday in this morning’s trade and by a 1.5% single day increase in palladium ETF holdings resulting from an inflow of 6,785 ounces. Total palladium ETF holdings are now 6.1% higher year-to-date.
COPPER
While copper has managed to recover off yesterday’s spike low, the magnitude of the bounce is feeble and not a strong sign of a technical bottom. However, strength in Chinese industrial metals prices this week, strong economic readings from a Bloomberg aggregate index of 8 early indicators in China and upbeat Chinese car and home sales expectations provide a very solid fundamental bottoming environment. Unfortunately for the bull camp, US economic data continues to project slowing in the US and given a two day increase of 8,050-tons in LME daily copper warehouse stocks, some supply and demand continue to weigh on copper prices. Another bearish supply pressure operating in the market is news of an increase in Anglo-American copper production of 28% in their latest quarterly results. A minimal offset to that large South American production increase came from Poland where KGHM showed March output to have declined by 2%.
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