Written Commentary
GOLD / SILVER
While the US dollar is showing some vulnerability on its charts early today, treasury yields may have temporarily peaked leaving the primary outside market influences slightly supportive of gold. However, we see no reason to take control away from the bear camp with the hedge funds reducing their long positioning last week, another week of ETF holding declines, an overbought net spec and fund positioning, a residual negative global commodity market environment, and perhaps most importantly from growing economic concerns in China. With the last COT positioning report showing the net spec and fund long in gold near the highest levels since May 2022, falling trading volume and declining open interest on last week’s recovery bounce, the bear camp retains control over the trend. Certainly, the situation in China could produce a global flight to quality buying situation for gold, but the gold market has not shown much sensitivity to uncertainty issues over the last year.
COPPER
Apparently, the copper trade was not disappointed with the lack of an interest rate cut from China overnight, as prices are under only moderate pressure early today. However, some traders expect Chinese inventories to be built up into the February holiday as evidenced by the increase in Chinese bonded supplies last week and the second straight week of increased Shanghai exchange copper inventories. With the aggressive rally at the end of last week lifting the March copper contract toward downtrend channel resistance, the bear camp could be offered an opportunity to get short at favorable risk and reward levels on the charts. In retrospect, seeing the Chinese government instruct local governments with debt problems to halt infrastructure programs is a very troubling sign for the Chinese economy and for the copper market. Unfortunately for the bull camp the PBOC did not cut rates today, and with Chinese equities plummeting overnight, we think March copper is poised to quickly return to the $3.70 level. In fact, with the recovery from last week’s spike low, the net spec and fund short in copper was likely leveled potentially setting the table for an extension of the lower low and lower high pattern in place since the final days of 2023.
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