Written Commentary
COPPER
With Chinese equity markets extending a lengthening string of daily gains, LME copper warehouse stocks continuing to fall persistently, a downside breakout in the dollar and global risk on sentiment, the path of least resistance is up in copper. However, the copper market is becoming short-term overbought and trading interest has dissipated aggressively after the March contract traded above $3.90. In fact, with the huge spike up move on Tuesday posting the highest trading volume since last February, it is possible a quasi-blowoff top was forged. On the other hand, copper demand expectations continue to improve off the narrative that Chinese assistance for their property sector will revive the national economy. Countervailing the short-term overbought technical condition in copper is a pre-existing moderately large net spec and fund short of 30,652 contracts. Therefore, bargain hunting buying from improved China news is probably fostering short covering buying, physical buying, and fresh speculative buying.
GOLD / SILVER
While the press continues to tout flight to quality buying interest in gold from events in the Middle East, we are highly suspicious of that argument and think the ebb and flow of the dollar index trade is the primary focus of the gold trade. Therefore, with the downside breakout/plunge in the dollar to the lowest level since February 2nd overnight, US treasury yields potentially capping out just below three-month highs and broad-based risk on sentiment from good Nvidia earnings the bull camp has several credible themes. While it is possible that gold is deriving some investment support from surging Harmony gold mining shares, the company also predicted their production would increase by 14% and they recorded higher grades of ore than year ago levels and that is limiting of gold futures prices. In retrospect, we are surprised and impressed with gold’s ability to traverse the release of the FOMC meeting minutes without disappointment from another slight pushing back of probable US rate cut timing. However, the market will continue to face information from the US Fed with a wave of Fed speeches over the coming 48 hours. While the FOMC meeting minutes did not definitively push back US rate cut timing, that was the general take away which in turn has been parroted by recent US Federal Reserve speeches. Fortunately for the bull camp in gold, the markets were widely anticipating a lack of dovish news from the Fed meeting minutes yesterday and for the time being gold and silver traders look to discount the delay in cutting US rates and are content to embrace ongoing weakness in the dollar.
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