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Short Covering Off Dollar Weakness


Apparently, a slight retrenchment in the US dollar combined with an extension of crude oil price gains overnight and general risk on action in global equity markets has given rise to a surprise bounce in gold and silver prices. From a technical perspective, the rejection of sub $1900 trading in gold gives that area increased potential as a solid support point. While gold and silver appear to be positively correlated with global equities, the increased intensity of fighting in Ukraine is probably not a major part of the reason for this morning’s strength.


With the palladium market in the last COT positioning report registering a net spec and fund short of 1,553 contracts and the market falling $330 after that report (into the low Monday), the net spec and fund short likely approached record levels. Therefore, a portion of this week’s gains were likely classical short covering, and not necessarily fresh speculative buying. About the most positive thing that can be said of platinum is its ability to extend this week’s sideways consolidation and in turn build a shelf of support under the $900 level.


Perhaps the copper market has already factored the potential for further Chinese stimulus and or the latest type of stimulus is more supportive of Chinese equities than commodities. The changes in global copper warehouse stocks overnight shook out as a net positive with LME copper warehouse stocks increasing by 5,200 tons and Shanghai copper warehouse stocks declining by a very significant 21,492 tons (-30.8%).

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