Written Commentary
GOLD & SILVER
While gold has not managed a new all-time high this morning, both gold and silver markets remain just under this week’s highs. We suspect the downgrade of China provides a measure of flight to quality buying, but China is also the largest consumer of gold, and the last mainland China gold import tally showed a month over month reduction of almost 50% and therefore the downgrade could injure classic physical gold demand expectations. In a sign of volatility potential in the current market, the Shanghai futures exchange implemented trading limits on gold and copper starting Friday. However, the focus of the gold trade will obviously shift to the US today and the latest inflation reading which in turn will likely result in the usual chain reaction between US treasuries, the dollar and gold prices. Clearly, the trade is expecting US CPI to soften thereby rekindling hope for rate cuts. Fortunately for the bull camp, supportive data and developments have not lifted the dollar, potentially indicating a lower path in the currency index ahead. Clearly, seeing gold and silver as hedges against a widening of geopolitical risks around the globe will remain in place today despite the gyrations caused by US CPI.
COPPER
With May copper sitting just under yesterday’s spike high, the market up aggressively over the past two weeks and holding the gains this morning in the face of a Fitch downgrade of China, the bull camp in copper has significant fortitude. The Fitch downgrade moved the Chinese outlook to negative because of consistently expanding debt. In a sign of volatility potential in the current market, the Shanghai futures exchange implemented trading limits on gold and copper starting Friday. Apparently, a portion of the trade continues to base their buying interest on the mine disruptions in central and south America, while others continue to buy aggressively off the unilateral decision to reduce smelter capacity in China. However, with the copper market into the highs yesterday sitting $0.55 above the 2024 low, short-term technical indicators are flashing red and with a wave of fund buying operating in the market this week, prices are beginning to feel very expensive.
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