Written Commentary
GOLD / SILVER
We are a little surprised with the strength in gold and silver prices this morning following signs of significant softening in Chinese inflation readings overnight. Perhaps the gold and silver trade see the precipitous weakness in Chinese inflation adding to global economic uncertainty. However, soft Chinese inflation data also sparked chatter of a possible Chinese stimulus effort and that could become a pillar of the bull case ahead. Certainly, weakness in the dollar is an additive to the bull case this morning but does not appear to be a key element given the index remains inside yesterday’s trading range. Overnight gold ETF holdings increased by 3488 ounces while silver holdings declined by a mere 137 ounces. However, the Fed’s Williams yesterday indicated American households are facing tightening credit conditions which in turn he suggested could slow the economy. The big question for gold and silver bulls is whether the bull track will extend if inflation is found to be moderating? With the silver market avoiding significant corrective action in the face of gold declines in the prior 3 sessions and prices remaining near an upside breakout this morning, it is possible that silver is poised to take a leadership role. In fact, if risk-on becomes widespread because of softer global inflation readings, improved physical/industrial demand hope for silver could become the main feature in the trade.
PALLADIUM / PLATINUM
With a big range/outside day down yesterday, the platinum charts turned bearish, but a recovery today balances sentiment and gives added credence to building consolidation support at the $1,000 level. As opposed to yesterday when gold and silver prices dragged platinum prices down, the precious metal markets appear to be back in vogue today perhaps because the markets are anticipating soft inflation readings from the US tomorrow and Thursday. As indicated already, Chinese inflation contracted which may signal global inflation is moderating. We are surprised that the contractions in Chinese CPI and PPI were not seen as a negative demand development for platinum and palladium. While the spec and funds are holding a large net short in palladium and palladium should draft support from gains in the rest of the precious metal markets, we suspect the market will remain pinned down to the $1400 level unless there is a major risk on wave following tomorrow’s US data.
COPPER
Like precious metal markets the copper trade has shaped very soft Chinese inflation readings overnight into a positive with talk of Chinese stimulus prospects. In fact, Chinese inflation readings were precipitously weak which surprisingly did not pressure copper prices off sagging demand concerns. While we suspect weakness in the dollar is adding to the bullish track in copper early today, we see global risk-on as a more important bullish catalyst. Apparently, the copper market has discounted headlines overnight following reports of increased copper production from Newmont which reportedly added nearly 50 billion pounds to its copper reserves. Furthermore, the US trade yesterday was presented with projections from the Peruvian Minister of Energy and Mines of a 15% 2023 increase in Peru copper output over 2022 levels and that is certainly a residual headwind for the bull camp. On the other hand, Peru copper production in January declined by 3.6% versus comparative year ago levels thereby casting some doubt on the higher production forecast.
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