Feb Gold Higher Overnight

GOLD / SILVER

February gold was higher overnight, continuing Thursday’s sharp rally and trading to its highest level since May 5. Gold was supported by a slightly lower dollar, which followed Thursday’s steep selloff. However, March silver was mixed to lower and was confined to Thursday’s wide range. At times yesterday, the bull camp in gold was disappointed in the magnitude of the gains following definitively supportive US economic news from inflation and jobs-related data. However, the action in outside markets supports the case for more gains. Certainly, the Dollar Index is short-term oversold, but the market has embraced ideas of a longer-term downtrend. Furthermore, US Treasury yields declined, energy prices showed strength, and the risk-on vibe should facilitate expectations for improved physical demand for gold. We estimate that the spec and fund net long in gold, adjusted to the highs this week, is at its highest level since last May, which could be construed as overbought. The sharp gains in gold and the sharp declines in the dollar have been a major component of this week’s modest recovery in silver, but it continues to take direction from the level of risk-on sentiment in the marketplace, and it will likely need confirmation improvement in global prospects the equity markets.

PALLADIUM / PLATINUM

March palladium was slightly higher at one point overnight but was back inside Thursday’s range and slightly lower late in the session. April platinum was also lower and was threatening to take out Thursday’s low. Not surprisingly, the palladium market yesterday showed almost no positive action following economic data that should have raised the probability of a soft landing for the US economy this year. Given the action in the PGM markets since last September, we think the substitution of palladium for platinum is well underway in several industrial processes. The sharp performance in platinum since the late December spike low has been impressive, but the market seems to have lost upside momentum and is likely to be held down by consolidation resistance just above the $1,100 level. It should be noted that platinum ETF holdings on Wednesday saw an extremely large outflow of 10,630 ounces resulting in a one-day decline of 0.4% in holdings, and yesterday they declined another 4,916 ounces for a 0.2% drop. Furthermore, the late December and early January rally in platinum saw a significant drop in trading volume, which could be an indication that the market views prices above $1,050 as expensive. On the other hand, seeing the decline in volume from the December 20 peak could be largely attributable to the holidays.

COPPER

Copper was lower overnight after reaching a seven-month high on Thursday. The gains this week are so significant that we are having difficulty justifying them. Apparently, the trade continues to factor the prospect of improving Chinese demand. We think the market has discounted the potential that we could hear some extremely negative Covid news from China at some point. Certainly, US macroeconomic news improved global copper demand expectations yesterday, and the precipitous slide in the US dollar adds additional optimism toward many commodities. China’s December imports of unwrought copper and copper ores & concentrates saw declines from November. LME copper stocks had their seventh daily decline in a row on Friday.

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