Written Commentary
COPPER
While the May copper contract forged a significantly higher high upward thrust early today, as of this writing the market is trading nearly $0.11 under its early high. A portion of the sharp rally in copper prices could be the result of various copper exchanges, and government entities pushing to enforce a ban on Russian copper supply flow into the LME as that could obviously pinch world supply. However, reports are that China is already purchasing disguised copper from Russia to avoid sanctions designed to punish Russia. A fresh bullish headline from overnight came from Citi who upwardly revised their copper price forecasts for the second and third quarters. While the copper market has certainly managed to charge higher in the face of significant disappointment over the Chinese economic condition, it has gained sharply in the face of a stronger dollar and has even climbed in the face of ongoing rebuilding of Shanghai copper warehouse inventories.
GOLD & SILVER
In addition to the major swing higher at the end of last week exaggerating the overbought conditions of gold and silver, the trade will likely have to contend with a surging US dollar, which is nearing the highest level in 5 1/2 months. Fortunately for the bull camp, US interest rates fell back slightly on Friday with traders thinking the upward track in interest rates will now abate. However, the Iranian drone attack directly against Israel is clearly an expansion of the fighting and could mean a country fighting a country instead of a country fighting a terrorist group. Furthermore, seeing Israel and Iran engage with more significant armament will certainly cause shipping disruptions in the area and is likely to reduce Iranian oil exports. In a slightly negative development, gold ETF holdings last week saw outflow of 481,361 ounces while silver ETF holdings declined by 9.5 million ounces. According to Goldman, the gold market is now an “Unshakeable bull market” likely to extend because of emerging market central bank buying, rising Asian retail investment and escalating US political uncertainty into the election. Therefore, gold and silver look as if they are in a flight to quality environment again but given severe outside market headwinds in the extreme ($ and Rates), and severe overbought technical signals, daily trading ranges could now become extreme.
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