Written Commentary
GOLD / SILVER
Clearly, the gold market has seen the bull camp revitalized by signs of a resumption of the dollar downtrend and has managed the rally despite evidence of a decline in Chinese October net mainland gold imports through Hong Kong. Therefore, the gold trade continues to focus on dollar and interest rate action at the expense of classic internal supply and demand developments. In fact, while the story should be regarded as “old” the trade continues to pound the drum on an on hold global central bank theme. Apparently, Chinese October net gold imports through Hong Kong declined by 23% on a month over month basis with that negative development partially offset by market expectations of ongoing Chinese central bank buying. However, the bull camp should monitor today’s launch of the latest US government debt refunding auction cycle as action in the rate markets appears to be the second most important driving force for gold and silver prices at present. With the prospect of low and or lower US treasury yields, growing chatter of slowing in the US and signs of weakening inflation pressure from falling grain and energy prices, we expect the dollar to continue to slide and gold prices continuing to rise.
COPPER
While the copper market appears to have settled into a consolidation pattern, the upward bias from the mid-November low leaves the longer-term technical trend pointing up. However, the trade continues to monitor contract negotiations regarding treatment charges for Chinese/Asian customers using the magnitude or lack of magnitude of the TC charges as a relative measure of demand. If treatment charges are high, that might indicate Chinese demand is strong enough to give the copper companies pricing power. On the other hand, some analysts interpret higher treatment charges as a penalty for smaller than anticipated Chinese contract volumes. In the near-term, the trade starts with a negative track as the Chinese Industrial Profit data disappointed overnight and Beijing has announced it has opened a criminal investigation into shadow lender Zhongzhi Enterprises. The fear now is that this investigation will force shadow lenders to stop lending to needy Chinese property developers, further dampening Chinese demand prospects for copper. This morning’s New Home Sales and the Dallas Fed’s Manufacturing index will give copper traders minimal direction during the North American session, and we suspect that direction will be bearish.
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