Written Commentary
GOLD & SILVER
While today could be a very critical pivot point for gold from a macroeconomic perspective, (US Fed meeting minutes release, 20 year US treasury bond auction, and existing home sales) it should be noted that internal fundamentals remain generally positive. In fact, gold ETF holdings have now risen for six straight days and silver ETF holdings yesterday jumped by a notable 2.8 million ounces. In a minimal and perhaps temporary negative development, gold saw a forecast overnight from Commerzbank suggesting gold prices will fall back to $2300 in the second half of this year. Countervailing the bearish $2300 price projection by Commerzbank is a forecast Morgan Stanley of a target of $2760 an ounce. The primary focus of the day will be the afternoon release of the last US FOMC meeting minutes notes which we think will have to definitively favor the doves or we expect gold to see late pressure. On the other hand, a mid-session 20 year US treasury bond auction could have an impact on gold but only if the results show unusually good or bad results. An added threat to the bull camp is news that both Indian and Chinese buyers are beginning to hesitate with prices near record highs. On the other hand, recent headlines suggest Russian and Chinese central bankers are committed to adding to gold reserves and there could be noted buying in breaks from Indian commercial finance companies given ongoing reports of very strong demand for Indian gold loans.
COPPER
With a three-day low early today, some of the allure of copper has dissipated perhaps because of a measure of price shock. In fact, chatter from the Asian markets overnight suggests Chinese demand is likely to soften given record prices and we suspect some longs are banking profits and seeking the safety of the sidelines ahead of this afternoon’s US FOMC meeting minutes release. Another indirect and perhaps temporary pressure on copper came from reports of significant bottlenecks in the historic buildout of Chinese solar power as that could result in a demand kink. Clearly, the copper market was massively overbought into this week’s highs as evidenced by Bloomberg coverage overnight indicating LME speculators have built the largest bullish position in seven weeks. While not as important of an impact, a slight reduction in rate cut hopes from the Bank of England this morning probably added a wrinkle of long liquidation this morning. It is also possible that copper is seeing a delayed reaction to news from southern copper earlier this week of the company’s expectation to increase copper production in Peru by 20% this year.
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