Written Commentary
GOLD & SILVER
The early corrective action in gold and silver this morning is very surprising, especially with the dollar breaking out and posting the lowest trade since the second half of July. Certainly, a slight uptick in implied treasury yields suggests the rate cut mentality is at least temporarily overplayed. On the other hand, today’s US initial and ongoing claims data will likely revive the rate cut watch with the probability of Fed easing rising incrementally with each soft US data point. At present, the CME Fed watch tool pegs the probability of a rate cut in the January 31st meeting at 16.5% with the odds of a cut in the March 20th meeting at a lofty 72.8%. In a sign of potential ongoing volatility, the Vietnam prime minister overnight ordered the central bank to stabilize the domestic gold market which is currently trading at a very significant $1237 premium to world gold prices. Another sign the gold market might be approaching overdone status is the plethora of forecasts calling for new all-time highs next year which are mostly predicated on macroeconomic arguments based on simple outside market action. Regardless of the source or magnitude of bullishness, the charts in gold are bullish and the market appears to be poised to regain the $2100 level before the end of the week. After showing early negative divergence with gold yesterday, the silver market came back aggressively after rejecting six-day lows. However, the silver market looks to have lost momentum and has settled into a trading range bound by $24.75 on the upside and $24.24 on the downside.
COPPER
With a pattern of higher highs and higher lows, the current trend in copper is up. The copper market appears to have taken positive Chinese economic data from earlier this week and rekindled Chinese copper demand expectations which some say are partially confirmed by reduced Chinese copper concentrate processing treatment and refining charges. Treatment charges usually fall when there is competition for supply and the markets have been able to play down the supply disruptions from Central and South America but apparently buyers in the world’s largest consuming nation think the world copper market is tightening. In conclusion, tightening global copper supply has been periodically discounted because of the lack of demand recovery in China but with Chinese copper ore and concentrate imports up 8.4% year-over-year in the January through November timeframe, Chinese demand is clearly strong enough to outrun supply.
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