GOLD / SILVER
With the dollar slightly higher and US treasuries flat, a $24 rally in gold and a $0.40 rally in silver is likely the result of US and Great Britain attacks of suspected Yemeni terrorists’ strongholds inside Yemen. Apparently, the oil and precious metal markets see the onshore strikes in Yemen as an escalation and perhaps a catalyst for an expansion of military aggression in the area. While the crude oil market is only up $2.40, a flight to quality situation is unfolding and has sparked an unusual migration to gold and silver. Historically, this morning’s reaction would have been a normal reaction, but over the last several years flight to quality rallies in gold and silver have been limited, with the trade instead constantly focused on outside market influences and other flight to quality tools. Some analysts overnight suggested the approach of the Chinese New Year has sparked demand resulting in Chinese gold premiums reaching $50 an ounce while at the same time Indian dealers are offering a $13 discount! Given the geopolitical control over gold and silver this morning, news that gold ETF holdings were reduced for the eighth straight session yesterday and news that holdings are already down one percent year to date is fully tossed aside. In retrospect, US CPI had a modest negative initial impact on gold and silver prices yesterday and the same is possible for today’s US PPI report which has a lower bar of a +0.1%. However, anxiety in the Middle East is likely to override initial weakness from US PPI potentially providing a buying opportunity for aggressive traders. While we will not argue against silver following gold higher today if US PPI is at or below expectations, we see a rally in silver as a bounce in a bear market.
We are surprised copper prices are only minimally lower to start today as supply and demand news from China overnight was negative. In addition to a 30% single week jump in Shanghai copper warehouse stocks, Chinese copper demand is back in question following a smaller than expected gain in new loans for December. Fortunately for the bull camp, Chinese new loans were above the prior month but simply failed to match expectations. However, copper also saw additional bearish news from China following reports that 2023 copper imports declined because of increased domestic production and more specifically because of a struggling industrial sector. Adding into the negative supply side vibe in copper this morning is the fact that all Shanghai weekly commodity stockpile readings increased except for tin. However, tempering the negative overall import reading Chinese January through December copper concentrate imports were up at 27.54 million tons versus 25.23 million tons the year before. On the other hand, Chinese January through December 2023 unwrought copper and copper product imports fell from 5.8 million tons in 2022 to 5.5 million tons in 2023. While LME copper warehouse stocks have continued a definitive pattern of declines, and copper prices into the Wednesday low were significantly oversold, we see negative Chinese equity market action overnight and disappointing Chinese loan data leaving the bear camp with control.
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