Written Commentary
GOLD & SILVER
Another day and another new all-time high in gold prices with the market managing the rally in the face of adversity from the dollar and US treasury yields. According to overnight press coverage from Asia, gold prices are being lifted by inflationary pressures resulting in purchasing of gold as a hedge. However, we are suspicious of that argument as inflation data has softened and delays in cutting interest rates should reduce inflationary expectations. Not surprisingly, the breakneck pace of gains has fostered a plethora of bullish chatter which should facilitate further gains ahead. Apparently, flight to quality interest from the renewed attacks by Israel is at the top of some traders list as the primary force lifting gold, especially with the recent attack reportedly killing seven aid workers. Other traders think global central bankers are reducing US treasury holdings and increasing gold holdings as a percent of their total holdings. Furthermore, given the sharp slide in treasury prices this week, ideas that central bankers are trimming US treasury holdings and buying gold is certainly plausible. Therefore, the focus of the gold trade directly ahead could become intense on treasury market action. With this week presenting the latest US monthly jobs report cycle, volatility in treasuries could surge thereby fanning the speculative flames for gold.
COPPER
The copper market posted a higher high yesterday and again overnight as if the trade continues to embrace fresh signs of a recovery in China following positive economic news released over the last week. In fact, the Chinese economy produced a positive Caixin services PMI reading overnight, and it appears that China is indeed showing some green shoots. It should be noted that the front month Shanghai exchange copper contract reached an all-time high today after five consecutive higher closes which certainly speaks of an overdone short-term technical condition. Furthermore, given the reduction in smelter capacity, China is likely to become a larger importer of finished copper products and less interested in raw ore. Overnight, the Shanghai exchanged released or republished last week’s copper warehouse inventory readings with a gain of 1,621 tons adding to the recent string of rising inventories. On the other hand, Asian sources are predicting Chinese copper inventories will begin to fall as seasonal production picks up, but normal seasonal production could be hindered by the effort to reduce excess smelter capacity.
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