Written Commentary
GOLD / SILVER
With another new high for the move in the dollar overnight, the slightly lower trade in gold and silver early was justified. While there appears to be movement closer to a debt ceiling deal in Washington, the markets have been baking a deal into the cake over the past 2 weeks and a very neutral agreement will probably result in many markets turning their focus to other fundamental issues. Fortunately for the bull camp in gold and silver, interest rate markets this morning are somewhat supportive after pressuring gold and silver throughout most of May. Unfortunately for the bull camp in silver ETF holdings last week declined by 1.98 million ounces, mostly the result of Friday’s single day outflow of 3.3 million ounces. In another negative fund-related development hedge funds reduced their net gold longs to the lowest levels since late February. In the end, we give the edge to the bear camp with the dollar “uptrend” likely to extend and a lack of bullish fundamental themes capable of sparking a reversal of the downward bias in silver.
PLATINUM / PALLADIUM
In retrospect, the July platinum contract appears to have found value at $1025.20 and that is probably the result of increased hedge fund longs in the latest COT report. Even though platinum is expected to garner consistent substitution demand gains from palladium, platinum demand is very vulnerable to any sign that China may be forced to reinstitute activity restrictions. Last week platinum ETF holdings increased by 16,483 ounces and are currently 10% higher year-to-date. The palladium market appears to have found its value around the $1400 level, but the aggressive washout early last week saw an increase in trading volume and falling open interest which is a combination that favors further downside ahead. Last week palladium ETF holdings were nearly unchanged with holdings rising on Friday by a mere 322 ounces leaving holdings 14% higher year-to-date.
COPPER
With LME copper warehouse stocks up every day over the last month, total LME copper warehouse stocks are now above the volume of supply held in Shanghai exchange warehouses and for some that suggests there is less uncertainty with respect to availability of supply for Western users than in China. However, some see the pattern of daily increases in LME copper supplies as a sign of slack demand. However, Shanghai copper stocks have declined for 13 straight weeks and are likely to reach the lowest levels of the year in this week’s report. In our opinion, the copper market was obviously oversold into last week’s low, with the net spec and fund short reaching the highest level since late March 2020!
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