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Bear Camp Retains Edge


With another higher high for the move in the dollar overnight, an upside extension in US treasury yields and mostly negative physical commodity market action, the bear camp retains the edge in both gold and silver this morning. Adding into the initial bearish tilt are significant outflows from both gold and silver ETF holdings yesterday. Clearly, the flight to quality angle is not operating in gold or silver again this morning even though the ratings agency Fitch has reminded the markets of potential change in ratings for various entities/instruments as a technical default loom in the US. Given the recent action in gold, we see the most probable breakout unfolding on the downside. Obviously, ongoing strength in the dollar is discouraging buyers which are also disappointed because of gold’s lack of strength in the face of significant macroeconomic uncertainty. Perhaps the gold trade remains confident in a last-minute deal to avoid US default, or the trade sees a default as a development likely to throw the US into recession and in turn deflate physical commodities like gold and silver. However, a portion of the gold trade remains hopeful of a quick return to contract highs if no deal is reached when the US trade opens next Tuesday. On the other hand, several Fed comments this week expressed concern for inflation and several members have not ruled out the prospect of a rate hike in June. In conclusion, without a major crisis many fundamental signals favor the bear camp.

Gold and Silver bars


With another downside extension of this week’s slide overnight the path of least resistance in platinum remains down. While the story has not been followed up with additional proof or headline coverage of a possible 2nd Covid wave in China, that story has enough gravity to discourage bottom picking. However, the Chinese Covid story has not surfaced today in a sign that the rumor of a 2nd wave of infections is likely a false alarm. Unfortunately for the bull camp yesterday, platinum ETF holdings posted a minimal decline of 864 ounces but holdings remain 10% higher year-to-date. The palladium market severely damaged its charts yesterday with a range down failure to the lowest levels since mid-March and while the downside extension this morning is minimal, the charts present bearish signals. Given the deteriorating macroeconomic view from the US debt debate and recent disappointing Chinese economic headlines, the path of least resistance remains down in palladium.


Despite several bullish long-term price forecasts released overnight, the near-term bias in the copper trade remains down. While the rumor of a 2nd Covid outbreak in China appears to have been false, concern for the Chinese economy remains in place partly because of a lack of official data from the Chinese government. While the overnight inflow to LME copper warehouse stocks of 275 tons is a minimal flow, the inflow was the 24th straight build which translates into talk of soft demand. With global economic data generally mixed to soft this week, copper demand views are deteriorating both inside and outside of China. Obviously, noted gains in US interest rates again this morning and more gains in the Dollar add to a growing list of bearish influences. The market is also disappointed in the lack of news of a Chinese stimulus effort, especially with recent scheduled Chinese4 data disappointing. Furthermore, it goes without saying that the potential for a political inspired macroeconomic washout in physical commodities is possible over the coming 6 sessions, with US politicians likely to go down to the deadline wire before compromising.


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Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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