Written Commentary
GOLD & SILVER
With another higher high for the move early today in the dollar and treasury yields hovering just below the three week highs posted yesterday, the gold and silver trade should continue to feel the looming threat of liquidation. On the one hand, gold and silver prices deserved a measure of corrective weakness after such massive gains over the last two months. However, the corrective action in gold and gold related instruments was broad yesterday with gold mining shares giving back recent noted gains. Clearly, some selling yesterday was generated by a sharp jump in the dollar and a pulse up in US treasury yields with that action likely extending into today’s action. While Bitcoin fell back sharply from the reduction in the prospects of a June US rate cut, the crypto markets were massively overbought from a long chain of daily record highs. However, with outside market forces shifting in favor of the bear camp, gold and silver prices are vulnerable to larger than normal corrective weakness.
COPPER
While we would not suggest traders fade this week’s very impressive rally yet, we think bullish fundamentals fail to justify a 20% March rally. In fact, the status of the Chinese economy remains murky best and besides various stimulus efforts, world markets are suspicious of recent Chinese growth targeting and Chinese data has favored a soft economy. In addition to consistently delaying the release of Chinese new loan data this week, overnight Chinese house prices for February declined by 1.4% or twice the decline posted in January. While the trade is heavily embracing the idea that an orchestrated cutback in Chinese copper smelting capacity is a major bull issue, the ultimate and most important influence on copper prices is the direction of Chinese copper demand. However, with Chinese copper smelters recently rushing to secure scarce material inputs, this week’s rally has likely pulled some demand forward leaving the market with a possible demand pullback ahead. Another major bearish force in today’s copper trade is another massive jump in weekly Shanghai copper warehouse stocks of 47,150 tons which extends the recent trend of very large inflows.
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