Gold & Silver Markets Rally Significantly

GOLD / SILVER

Despite the tight coiling sideways consolidation in the dollar over the last 36-hours the gold and silver markets have rallied significantly with the gold market posting a higher high and reaching the highest level since June 16th. Apparently, the gold and silver markets are comfortable “anticipating” a soft reading from tomorrow’s US consumer price index reading. While we see gold as short-term overbought and vulnerable to adverse macroeconomic/outside market action over the coming 24 hours, the uptrend is solidifying, and consistent gains are likely to pull in additional buyers. So far, the rally in gold futures prices has not stimulated flow into gold ETF holdings but it could take significant and sustained bullish press coverage to draw in investors and small traders. While the markets might accept the fact that the World Gold Council is usually bullishly biased in their Outlook reports, the Council is clearly upbeat on gold with significantly more bullish classic fundamental themes present in 2023 than in early 2022. However, we suspect gold and silver will see bargain-hunting buying on noted weakness ahead and could forge significant gains if the dollar continues down and the trade continues to embrace hope for a Fed pivot. Given the historical gold and silver price reaction to inflation, it is counter intuitive for the bull camp to “need” a soft US CPI reading on Thursday to extend the late 2022 and early 2023 rallies. However, seeing gold aggressively shake off disappointment from the Fed speech yesterday, discount strength in the dollar and ignore a jump in US treasury yields we think that highlights residual bullishness in the trade.. If you are very bullish toward gold avoid selling calls and focus on temporary put protection. Fortunately for the bull camp in silver, the market approaches the US CPI report well off the January spike high as that could moderate bearish outside market influences over the remainder of this week. As indicated already this morning, silver ETF holdings this week have shown very consistent and noted inflows!

PALLADIUM / PLATINUM

Not surprisingly, classical fundamental developments in palladium remained few and far between and therefore the construction of a tight coiling consolidation is not surprising especially into what could be a major macroeconomic event from tomorrow’s US CPI release. Furthermore, given the tacit gains in palladium during the recent improvement in global economic sentiment and in the face of an upside breakout in platinum on Monday, the palladium trade is clearly not easily pulled into the long side of the market. The platinum bulls have benefited from a series of positive macro headlines over the past five trading sessions the palladium market the bull camp “needs” an extension of risk on in equities and ongoing hope of a Fed pivot to avoid another strong compacted correction. In fact, with April platinum reaching the highest level since last March on declining trading volume during the late December and early January rally, it appears that the bull camp is facing a critical technical junction this week. However, the bull track in platinum has displayed durability since last September and positive economic sentiment following the release of US CPI will likely result in higher highs.

COPPER

With another range up new high for the move in copper overnight the copper bulls have no fear of repercussions from the Chinese Covid situation or from the potential for news that consumer inflation in the US remains hot. In retrospect, the copper market more than discounted the explosion in Chinese infections with prices instead forging a compacted $0.33 rally. More than likely traders see Chinese support for their property sector as a source of confidence. As we indicated in gold and silver coverage this morning, the trend in copper is clearly pointing up but the potential for wild two-sided swings in prices over the coming 36 hours is very high. Unfortunately for longs searching for temporary option protection against the potential upcoming volatility event option premiums in copper remain extremely expensive with implied volatility levels running over 32%. In a somewhat related outside market development strength in Chinese zinc prices, off talk of resurgent demand, should help support favorable Chinese copper demand views.

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