Written Commentary
GOLD / SILVER
With the dollar posting a technical breakout on the upside this morning, gold and silver bulls are fortunate treasury yields have remained low overnight. Global economic news overnight was mixed to slightly softer, which might be considered a negative to gold but more so to silver given its industrial focus. However, the overriding weight on the back of gold prices this morning is clear sentiment from the US Fed chairman that a rate cut in their next meeting in March is not their base case. In other bearish news overnight, Russia announced they purchased about 95 tons of gold in bars last year with those purchases down 5 tons from 2022. Another bearish central bank development for gold came from Kazakhstan overnight as their December gold holdings dropped from holdings in November. Not surprisingly, gold ETF holdings posted a 10th straight daily outflow as investors show their lack of interest in gold from delays in cutting global interest rates and in some minds from fears of disinflation. Investors are also fleeing silver ETF holdings, with last week’s massive single day inflow of 14 million ounces aggressively reversed this week with several days of sales of more than 2.2 million ounces. In another bearish development, the World Gold Council indicated global gold demand last year fell by 5% and indicated Chinese gold jewelry demand surpassed that of India. While it is a positive price development for Chinese gold jewelry demand to rise above India, the Indian economy is infinitely stronger than the Chinese economy and therefore global gold jewelry demand has yet to fully recover to normal. In short, the gold market remains technically overbought with open interest plummeting throughout most of this month.
COPPER
With another Chinese manufacturing report overnight registering anemic PMI readings, the outlook for Chinese copper demand is undermined at the same time the March copper contract has become significantly overbought from a short-term perspective following a nine-day rally of $0.17. Fortunately for the bull camp, at least one Chinese equity market managed to post a minimally higher close overnight, tempering what continues to be a very serious washout in Chinese stocks. While LME copper warehouse stocks posted a decline overnight, news coverage from Bloomberg indicating Chinese copper inventories in industrial storage position increased by 10,300 tons this week and that clearly adds bearish supply news to a market already facing ongoing signs of softening demand from its largest consumer. With the trade recently indicating the January upside extension in copper was the result of a falling dollar, seeing the US dollar breakout up to the highest level since December 12th overnight justifies the aggressive long liquidation selling this morning.
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