Written Commentary
GOLD & SILVER
The capitulation in gold and silver extended overnight with what we think is mostly stop loss selling from the massive net long built up from the $425 gold rally off the February low and the $7.50 rally in July silver. However, ongoing liquidation of flight to quality longs from lower ME angst is certainly adding to the washout while typical outside market influences of the dollar and treasury yields have not been a noted influence and are unlikely to be a key impact today. In retrospect, there was apparently more flight to quality longs in off the potential for a widespread Middle East war than expected and that should be remembered if conflict returns. The breath of selling is broad with gold mining shares pressed into two week lows yesterday and ongoing liquidation of gold and silver ETF holdings. In what is more of a psychological negative than a material physical negative, the Vietnam central bank only managed to sell a 1/5th of the gold at an auction overnight. From a short-term technical perspective, the June gold contract likely retains additional stop loss selling with the gold net spec and fund long position into Monday’s high likely at the highest level since April 2022.
COPPER
While the liquidation in precious metals is probably not linked to the reversal in copper today, copper has a similar overbought condition as gold and silver with disappointing global manufacturing PMI readings adding an element of selling interest this morning. While not a primary factor in the reversal, Anglo-American indicated their first quarter 2024 copper production was up 11% and they left their forecast of output for the entire year at 730,000 – 790,000 tons. After making another higher high for the move yesterday, gains in copper for the month of April increased to $0.52, which leaves the market vulnerable to aggressive stop loss selling. While the copper market might see the freefall extend sharply, it should be noted the copper market managed the aggressive April rally in the face of generally disappointing Chinese economic signals and that could eventually help the market find value around the $4.30 level. Certainly, the decision to reduce Chinese smelter capacity disrupted the refined copper market which remains the sector of the copper trade expected to be the tightest this year.
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