The charts in copper certainly favor the bull camp with very aggressive higher high and higher low action this week. In fact, strong copper price gains in the prior two trading sessions were forged on a jump in trading volume and higher open interest which can signal breadth in the bull camp. The copper trade should see added support from declining LME and Shanghai copper warehouse stocks readings released overnight. While LME copper stocks fell by a minimal 800 tons, Shanghai copper warehouse stocks declined by a very material 21,189 tons which is a decline of 11.6% on a week over week basis. On the other hand, the copper market has aggressively rejected the overnight higher high for the move and some technical analysts will interpret the action as a blowoff top. In the end, copper did manage a 16-day high this morning and while the net spec and fund short position has been brought down by this week’s rally, we suspect the market retains additional short covering buying capacity. However, the bull camp also has a very strong fundamental development working in its favor this morning following reports that copper supplies inside China continue to decline. In addition to the sharp decline in Shanghai exchange stocks, the copper market saw another significant drop in private company inventories of roughly 18,700 tons from Monday. While not always the case, declining visible copper supplies inside China is usually seen as a sign of strengthening demand.
GOLD / SILVER
Not surprisingly, gold is under initial pressure this morning following higher action in the dollar, but we also suspect gold is encountering some long profit-taking off what seems to be an uptick in global slowing fear. The bull camp should also be a little disappointed in a smallish inflow to gold ETF holdings yesterday of 5,987 ounces as that suggests the sharp gain in gold futures prices this week has not prompted a noted influx of investment in gold derivative instruments. While some may interpret that as a lack of breadth in the bull camp, we suggest ETF holdings are partly a lagging indicator with smaller investors usually late to the party. Certainly, several very bullish forces remain in play in gold with Goldman earlier in the week labeling gold as “the” investment hedge of preference and predicting gold to trade to $2050. Fortunately for the bull camp, yesterday’s strong gold rally was forged on stronger trading volume and that can be partial confirmation of a lingering bull condition. In retrospect, global inflation data released earlier this week confirmed inflation remains problematic around the world and if the US Fed is forced to hold back its inflation fight to save the US banking system, inflation will likely regain momentum and therefore, we see an initial upside target of $2,100 in June gold. As indicated earlier in the week the silver market charts are not as overbought as gold and upside action over the past two weeks has been very orderly and potentially indicative of continued stepwise gains ahead.
PALLADIUM / PLATINUM
We leave the edge with the bull camp in platinum with the uptrend channel presenting solid uptrend channel line support at $978 today. In today’s action, we see platinum reverting to its physical commodity market status with softening demand fears giving the bear camp a modest edge. However, the market could draft minimal support from overnight news that a major South African platinum mining company (Northam Platinum Holdings) skipped its normal dividend and saw its shares fall by 8% as that could be a sign of contracting production from the company ahead. While the platinum market is likely to trade physical commodity market forces initially today, traders should watch for a strong upside extension in gold today as that could spark sudden speculative buying of platinum. The most positive thing that can be said about the palladium market is continued construction of an expansive sideways consolidation support pattern on the charts around $1,400. However, the palladium market continues to hold a net spec and fund “short” position of note, and a seemingly benign breakout above $1,470 could spark a moderate wave of stop loss buying. In fact, the palladium market is not without positive fundamentals, as palladium ETF holdings have the largest year-to-date gain of the actively traded ETF precious metal instruments.
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