Written Commentary
GOLD / SILVER
The trade is looking ahead to the Fed chairman’s speech, where the focus will be on any acknowledgment of progress fighting inflation. Any sign that the Fed is gaining traction would hammer the dollar and lift gold. However, silver saw a very bullish report last week from the Silver Institute that projected a large supply deficit. Silver’s price action has been very impressive relative to gold, indicating it might now be the leadership market. The likelihood that the Fed will proceed with 50 basis-point hikes is widely anticipated and has been factored into the market, and while it is unlikely that the Fed will be deterred from making several of them, if the Fed acknowledges that inflation has been tempered, it could lower the ultimate target for the Fed funds rate, which would lift gold and silver. Chinese President Xi’s crackdown on the Covid lockdown protests might be very harsh for him to prove that his lifetime control is valid. This could encourage mainland buying of gold via Hong Kong.
PALLADIUM / PLATINUM
There is a spreading strike situation in South Korea that could cause another disruption of supply chains, including those for microchips, electronics, and perhaps most importantly, vehicles, which could affect PGM consumption. The PGM sector has seen some wide-sweeping price action due to the ebb and flow of global risk sentiment, with platinum regaining the upper hand on palladium, perhaps due to end-of-month spread unwinding. January platinum traded to its highest level in two weeks on Tuesday and extended those gains overnight, as it continues along its uptrend that it has held since putting in a two year low in late summer. The $970 area is a key support level, as it is close to last week’s low ($970.70) and the first retracement of the September-November rally ($969.90). Look for resistance at $1,034.90. A key support area for March palladium comes in at $1,800, and a break below there could set the market on a course to test the contract low at $1,774.
COPPER
Since the start of last week, copper has seen volatile trading action in a range between $3.73 and $3.54. Going into month end, the market may be setting up for an upside breakout move. March copper finished Tuesday with a moderate gain, and it has followed through with a sharp rally this morning. The spreading strike situation in South Korea is likely to disrupt supply chains which will involve microchips, electronics and vehicles which will have a significant impact on the copper market. Moves by the Chinese government to shore up their property sector have improved the demand outlook for copper in China and around the globe. The second daily decline in a row for LME copper stocks is also supportive. The Shanghai Composite gain reached a 2-month high on Wednesday, which should further soothe concern over China’s demand outlook.
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