Written Commentary
GOLD / SILVER
The early action in gold this morning is disappointing with an expansion of tensions in the Middle East overnight with Yemeni Huthis attacking Israel and Saudi Arabia launched an attack against Yemen. This comes as the Israeli’s clinched the key thoroughfare that connects northern Gaza with the south. The bull camp should be further deflated from the lack of gains this morning following declines in the dollar and a surprising and massive single day gold ETF inflow of 690,904 ounces yesterday. Unfortunately for the bull camp significant Indian gold festival buying expectations have been undermined by “expensive pricing”. In the past, Indian buyers have been extremely sensitive to high flat price increases and with currency adjusted gold prices up 24% YoY in rupee terms buying is unlikely to match initial upbeat forecasts. Many Indian gold analysts are predicting a fall in demand from gold buyers across India as Diwali and Dusherra get underway. The World Gold Council put out a lot of information overnight focusing on very strong demand from China, and central banks. While December gold did not forge a higher high yesterday and many markets calmed, the threat of a major geopolitical incident in the Middle East remains extremely high.
COPPER
While the copper market is technically trading higher today that is largely the result of the aggressive downside washout yesterday as Chinese manufacturing and non-manufacturing PMI data released overnight was disappointing. Apparently, the copper market is also unfazed by news that China plans to reduce smelting overcapacity in aluminum and copper perhaps because that could result in increased imports of foreign refined copper products when and if the Chinese economy regains momentum. In the end, the Chinese economy is still judged as fragile which in turn means Chinese copper demand is also seen as fragile. Fortunately for the bull camp, a recently developed downtrend in daily LME copper warehouse stocks continues to extend and last week’s sharp decline in Shanghai weekly copper stocks keeps talk of tight supply in play.
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