Written Commentary
PRECIOUS METALS
Not surprisingly, the gold market is benefiting from what appears to be an increase in global financial uncertainty with US bonds and bitcoin seemingly confirming a flight to quality interest today. Sources of flight to quality interest are worst-case global economic concerns from assumptions of a global trade battle and perhaps concerns of brewing debt problems for the European Central Bank. A very minimal flight to quality negative is the potential for an Israeli/Hezbollah cease-fire. Other minimal headwinds for gold are Turkish central bank gold for a Turkish lira sell side swap auction and a 284,723 ounce gold ETF outflow Monday which (according to Bloomberg) was the largest outflow in three months. We suspect the precious metal markets are likely to show a brief volatility surge following today’s quarterly US PCE inflation reading, but the reading must be softer than the prior quarter to raise the prospects of a December US rate cut. The bull bear line in the US quarterly PCE reading today is +0.3%! In fact, with the dollar posting a downside extension this morning and gold fresh off aggressive liquidation to start the week, the bull camp should have technical and fundamental control. Lastly, the recovery in gold following the sharp declines of Monday and Tuesday has sparked chatter that the decline in prices has sparked physical bargain hunting demand. Unlike gold, silver should see a lift from Monday’s ETF holdings inflow of 1.1 million ounces and from a massive overnight inflow of 5.8 million ounces which brings net purchases this year to 40 million ounces. Therefore, silver has positive demand fundamentals in the form of record demand (predictions by the Silver Institute) and from the prospects of technical stop-loss buying.
COPPER
With global worst-case scenario fear mongering of a US/China trade war it is surprising that March copper has managed to remain inside yesterday’s trading range. In fact, it appears the copper trade is entrenched on the idea that the Trump administration will be bearish toward copper prices with added fears new US policies will increase price volatility. An example of the fear mongering is comments from the head of commodities at Bank of America who suggested that “America first means commodities second.” However, Bloomberg has noted London copper prices have rebounded sharply (despite sideways action in US copper) since the Trump victory and this morning there is talk that Chinese demand has picked up which might be the main impetus behind the ability of US copper to build a consolidation just above $4.10. Obviously, the divergence between LME copper and US copper has been associated with the sharp rise in the dollar. While Chinese manufacturing and nonmanufacturing PMI readings over the weekend could reveal minimal signs of improved activity, the trade has recently not been accepting of positive Chinese economic views. Overnight LME copper warehouse stocks declined an insignificant 425 tons but continue the general pattern of exchange outflows.
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