Written Commentary
GOLD / SILVER
With the gold market sitting at levels which would create the first weekly loss of this year, the dollar minimally higher, treasury yields minimally higher and US producer price index report for January scheduled for release this morning, gold is likely to experience a flare of volatility which will likely dissipate quickly. While we see the current fundamental and technical trend pointing down, as expected or softer than expected PPI readings could dramatically increase respect for the $2000 level and prompt a short covering wave capable of sending April gold up to $2026. However, the trade will be presented with a second wave of US inflation information in the form of the University of Michigan five-year consumer inflation expectations report for the month of February. There are no expectations for the UoM inflation expectations report but last month the reading registered a significant 2.9% gain. Unfortunately for traders, the PPI report expectations of a 0.1% gain is effectively a Goldilocks reading which makes it difficult to identify the inflation “trend”.
COPPER
In retrospect, the copper market managed to claw out gains in the face of this week’s Chinese holiday and the bull camp continued to receive support from daily LME copper warehouse stock declines. However, with copper prices sitting in the middle of the last 10 month’s trading range, a swing of $0.10 in either direction is possible today. Obviously, the US PPI report is the event of the day but expectations for the reading predict such minimal change it should be difficult to come away with a definitive view on the direction of producer price inflation. On the other hand, big picture macroeconomic sentiment has improved with steady recovery action in equities and from the view that the US Fed, ECB, and the Bank of Japan have not ruled out completing their pivots with rate cuts. Unfortunately for the bull camp, copper prices are short-term overbought following a five-day low to high rally of 14.5 cents and could leave the market vulnerable to corrective action without a reemergence of rate cut chatter today. In another negative but technically based development this week’s the aggressive rally has been forged on falling open interest and lower trading volume.
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