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Bull Control Extends if Claims Rise Again


While yesterday’s sharp gains in gold and silver were partly supported by outside market action, we continue to think there are classic flight to quality buyers moving into gold and silver as hedges against a geopolitical or financial market crisis ahead. Even though the prospect of a significant crisis and the potential flight to quality influences from a crisis, gold has displayed significant corrective action in the face of escalation of the Middle East conflict in the recent past. However, ideas that runaway inflation was behind the recent record run up in gold and silver prices suffered a significant blow yesterday when the US core CPI reading posted the first softening in six months. It goes without saying that seeing the pendulum of US Federal Reserve rate cut bias shift in favor of a cut added to the magnitude of the gains yesterday. However, the Minneapolis Fed Pres. Kashkari suggested the Fed may not be able to cut rates through the rest of the year. On the other hand, a sector of the financial trade raised their projections of a September US rate cut to 61% but that feeling is not dominant in the market despite this week’s inflation data. However, today’s US initial claims reading could raise rate cut hopes again if initial claims post another upside breakout from last week’s level of 231,000. Last week, US initial claims jumped to the highest level since November 2023. Another higher high in US initial claims will force the dollar and treasury yields down further, potentially providing gold and silver with a very strong finish to the trading week.


With the July copper presenting a classic blowoff top formation yesterday (major range up reversal, on heavy trading volume, and a decline in open interest) an intermediate top may have been forged. Even though the copper market has posted what appeared to be a blowoff several times over the last two weeks, the magnitude of the gains this week should discourage those looking to sell into the strength. However, the bull camp has several classic bullish fundamentals remaining in its favor with entrenched ideas that global supply is highly unlikely to keep pace with expanding demand global green energy efforts. Along those lines, copper bulls can take added confidence from a University of Michigan study indicating that copper mining expansion cannot keep up with demand for the manufacture of electric vehicles in the US and China, with additional demand for electric grid expansion and modernization in China and the US raising the bar for supply flow. On the other hand, talk of a short squeeze has surfaced and arbitrage between London and New York has increased the chances that bullish sentiment is rapidly becoming excessive.


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