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Gold & Silver Headwinds Tempered


While the gold market forged a quasi-upside breakout yesterday the market has fallen back into a building consolidation zone. In general, we suspect gold and silver will continue to benefit from geopolitical flight to quality buying and somewhat less from the dovish pivot in sentiment toward US interest rates following last week’s data. However, the bull camp should be very discouraged with the lack of gains in gold and silver this morning given the Israeli offensive. Furthermore, we are highly suspicious of the dovish drift in the Treasuries market with inflation arguably holding steady at high levels and at damaging levels. Nonetheless, treasury prices have recovered, and the dollar has softened thereby tempering outside market headwinds for gold and silver. In addition to the Israeli attack overnight, the markets were also presented with a statement from the Russian government yesterday ordering its troops to begin training for the use of tactical nuclear weapons. We have to say the Russia’s decision to train for the use of tactical nukes, as any nuclear detonation in Ukraine should ignite significant “safe haven” buying of gold and silver. Even classic fundamentals are supportive, with a decline in Gold Fields quarterly gold production and positive demand signals from a 6% first quarter increase in Chinese gold consumption. In the end, we leave the edge with the bull camp with sellers potentially encountering significant adversity from the unpredictable events in Ukraine and Gaza. In July silver, the charts turned definitively bullish yesterday with a major range up move and a relative outperformance of the gold rally. Furthermore, the July silver contract managed a higher high overnight, but continued to see outflows from ETF holdings.

half gold and silver bar


While it appears the July copper contract has become short-term overbought and is exhibiting corrective action today, the bullish buzz has not left the building. Fortunately for the bull camp, LME copper warehouse stocks continue to decline with a noted overnight outflow of nearly 4,000 tons. In a fresh negative for copper prices Freeport Mac Moran has apparently gained a license from the Indonesian government to export up to 900,000 tons of copper concentrate its Grasberg mine which serves to partially offset the production setbacks from Panama. However, as in our gold and silver commentary this morning, we are suspicious of the lift for commodities like copper from renewed hope of a US rate cut. In retrospect, it was surprising copper prices rallied yesterday following evidence that Chinese smelters were turning their focus to domestic scrap because of favorable price differentials. It should also be noted that copper managed to rally yesterday in the face of predictions that Chinese copper companies could export up to 50,000 tonnes of copper this month.


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Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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