Written Commentary
GOLD / SILVER
Obviously, gold, and silver are short-term overbought from a technical perspective and perhaps somewhat overbought from a fundamental perspective. Nonetheless, with gold and silver prices vaulting higher yesterday and gold prices forging record highs again, the bull camp retains control even without a definitively apparent bullish fundamental theme. However, gold has forged a five-day low to high rally of $123 which suggests the bull camp will need some “help” from the US Federal Reserve Chairman testimony this morning. While falling US treasury yields might have provided some lift yesterday, gold has not seen much support from the treasury markets during this wave lower in US treasury yields. Even more surprising is the fact gold and silver continue to rise without a significant Chinese stimulus and without noted weakness in the US dollar. So far, small investors have not joined the fray as gold and silver ETF holdings have continued to slide despite daily headlines touting huge returns for those long gold and silver instruments. While gold might be attracting investment from reemerging hopes for global rate cuts in June, following an extending chain of soft US data points and lower ISM prices paid, those arguments have not fostered gains in other critical physical commodities like oil and copper. Therefore, it appears that gold and silver are benefiting from a flight to quality angle which might be associated with or signaled by the upside explosion in bitcoin.
COPPER
On the one hand, seeing copper prices avoid noted weakness from a lack of stimulus from the Chinese national party meeting yesterday suggests the bear camp is not dominating the copper market at present. However, without an expansive stimulus from China, we suspect economic sentiment toward China will deteriorate again and along with a deterioration in sentiment toward China we suspect Chinese copper demand will be pulled down pulling copper prices down with it. Given the disappointment from the lack of a sentiment changing Chinese stimulus package, upcoming Chinese import, and export data will need to show positive results avoid an extension of this week’s developing lower high and lower low pattern on the charts. Fortunately for the bull camp, a UBS copper price forecast suggested the bull market in copper would extend in the years ahead as production problems are expected to remain entrenched. While the market has not shown interest in near-term supply tightening news, daily LME copper warehouse stocks continue to fall at a brisk pace thereby offsetting a portion of the significant jump in Chinese exchange warehouse stocks over the last two weeks.
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