Gold Market Experiences Headwinds

GOLD / SILVER

While the charts in gold tilt in favor of the bull camp, the upward bias is likely a simple drift toward the top of the last month and half consolidation pattern. Outside market influences early today are offsetting with supportive treasuries countered by minimal strength in the dollar. The gold market is likely experiencing some headwinds following the release of the World Gold Council’s latest report. The decline in ETF and OTC instruments were the largest annual outflows since 2013 when gold was amid a $640 slide. Fortunately for the bull camp, China surpassed India as the world’s largest gold jewelry consumers and 2023 demand was still better than 10-year average demand despite the net contraction. It should be noted that gold jewelry fabrication is the largest demand source followed by bars and coins. Along those soft demand lines gold ETF holdings have declined for nine straight sessions while silver has notched three consecutive large daily outflows. However, the World Gold Council expects 2024 gold demand to hit a record mostly because of central bank buying. Overnight Chinese economic data showed almost no forward traction by the economy with the numbers potentially overstated to prop up domestic sentiment. In the near-term, it appears that gold has carved out gains into today’s Federal Reserve meeting off the theme that the Fed will provide a generally dovish take away by acknowledging softer inflation and a measure of softening of the US economy. We suspect the gold market continues to derive a measure of flight to quality support from those anticipating a US retaliation against those who killed US military personnel in Jordan. However, we think it is unlikely the Fed will rekindle hopes of a March US rate cut which was recently pegged at only 39% by the CME Fed Watch tool.

COPPER

We are a little surprised with the initial rejection of a lower low overnight as Chinese economic news was generally disappointing with nonmanufacturing slightly improved while the more copper focused manufacturing reading merely matched expectations. In our opinion, the data from China is likely being massaged to prop up sentiment in the wake of the unending problems in the Chinese property sector. On the other hand, a Bloomberg report overnight showed the top 20 brokers on the Shanghai futures exchange expanded their net positions in copper, but that bullish news is countervailed by short term overbought technical signals from that exchange. We think speculators this week are also buying copper off anticipation of a Chinese stimulus move but there should be some disappointment this morning of the lack of an announcement overnight. However, lingering hope that the US Fed will present a generally dovish press conference is likely to prop up copper prices in the morning trade. However, the gain in copper prices yesterday was impressive given higher copper production last year from the Las Bambas copper mine and furthermore in the face of a Reuters poll which predicted choppy to sideways price action in copper until late this year when prices are expected to recover.

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