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The up trend continues with fresh bullish fundamental fuel

Commentaries & Views

OUTSIDE MARKET DEVELOPMENTS: Global equity markets overnight were mixed without respect to geographic pattern. Japanese machinery orders for the month of March were better than expected, but in a slightly disappointing move the PBOC left interest rates unchanged. Australian retail sales for April fell nearly 18% from the previous month. UK consumer price measures were all softer than expected, with producer prices particularly deflationary. Even the euro zone saw softer than expected consumer price readings for the month of April. The Australian government has announced that they will accelerate the opening of their economy with some economists suggesting that is possibly related to the additional headwinds from the Chinese trade conflict. The North American session will start out with a weekly private survey of mortgage applications, followed by April Canadian CPI, which is expected to have a sizable downtick from March's 0.9% year-over-year rate. March Canadian wholesale sales are forecast to be down from February's 0.7% reading. The meeting minutes for the April FOMC policy meeting will be released during afternoon US trading hours. Earnings announcements will include Lowe's, Target, Analog Devices and McKesson before the Wall Street opening, while Synopsys and Copart report after the close.

The silver market continues to outperform the gold market today, with another higher high for the move and its highest trade since February 27. The silver market is responding to what appears to be a definitive jump in bullish media coverage, with some analysis pointing to the dramatic inflow of ETF investment and others merely pointing out silver's gains as a sign of something significant unfolding. The gold market has seen its share of bullish headlines, the latest being an analyst projecting gold to hit $2000 within 12 months. Yesterday silver ETFs added 8.7 million ounces to their holdings, bringing this year's net purchases within striking distance of 100 million. Gold ETF holdings increased 121,257 ounces for an 18th straight inflow. As we indicated yesterday, projecting 5 month inflows into full year rates is highly suspect, but at the current pace silver could see a net "gain" in demand from ETFs of 240 million ounces. For gold, a continuation of the pace of investment from the first 5 months into the end of the year could add 1300 tons or more to world demand. The trade is not ruling out improvement in classic physical demand this morning, with gold retail shops beginning to open up in both India and China. For a short term perspective, the markets look to a 24 hour pause in critical global economic data, which in turn appears to have opened up the potential for investment gains inspired by further stimulus headlines. Overnight the Chinese media has indicated that sweeping infrastructure plans are likely to come out of the upcoming meeting, with 20 provinces announcing plans to build new infrastructure projects likely exceeding 1 trillion yuan. Apparently the majority of those infrastructure projects are also seeing private investment. Gold and silver appear to have benefited from some doubt on the Moderna Inc. vaccine trial results. While not a definitive development, weakening in the US dollar could begin to provide support to gold and silver but perhaps not until the dollar returns to the May lows. All things considered, we suspect gold and silver are beginning to transition into markets that can benefit from risk-on and risk-off.

We see the PGM markets looking through the economic lockdowns to better physical demand conditions ahead. They did see a bit of negative supply news yesterday, with South African PGM output in February gaining 8.7% over year ago levels. On the other hand, the mining shutdowns to contain the virus largely started in late March and continued until recently. Many mining experts indicate it will take time before closed operations return to full production, with some not expected to be at 100% until the fourth quarter. Therefore, it is possible that supply will tighten in subsequent data points, and with auto production beginning to creep back to life, classic supply and demand forces are becoming more supportive of the bull case. It is also possible that palladium will catch spillover buying interest from silver, even though palladium ETF holdings have not been embraced as an investment tool. We continue to see targeting and resistance in June Palladium at $2,255 and would remain bullish as long as it stays above $1,971.10. The sharp, three day run-up and another higher high today shows in platinum indicates this has momentum equaling silver’s. While trading volume has not jumped significantly, totals are increasing on the rally, giving further credence to the bull case. Near term targeting/resistance is seen at $921 in July Platinum, and we would remain bullish as long as it maintains above $848.20.

MARKET IDEAS: Despite signs of corrective action earlier in the week, the precious metals markets have continued to move higher in moves that appear to have staying power. With investment demand chugging along on a daily basis and the hope for a resumption of retail activity in jewelry and bullion shops in Asia, the markets appear to be gaining fuel. Clearly the gold market is now lagging behind silver with prices at this week's highs remaining under this year's highs. Nonetheless, the bias is up with initial resistance seen at $1761.20 and then again up at $1775.80. In silver, the higher high pattern extends into fifth straight session with rising volume and a possible near term direct target up at $19.075. We would remain bullish toward July silver as long as it holds above $17.34.

Modest corrective tilt should be a brief pause in the bull market

While the copper market has shown a bit of corrective action over the past 36 hours, it probably needed a measure of technical balancing given the magnitude of this week's early gains. It is probably a little disappointed by the Bank of China leaving its interest rate level unchanged overnight, but the Chinese copper demand outlook is left in positive standing by details of an infrastructure spending program that is widely expected from this week's national leadership meeting. Chinese state media has suggested 20 provinces have infrastructure programs in the works, supposedly with 1 trillion yuan of government support. The state media has also suggested private money will be added to the projects. It should be noted that Australia plans to accelerate its opening activities. Retail shops are reportedly opening throughout Asia and there continues to be hope for an effective vaccine.

MARKET IDEAS: While we doubt the July copper contract will fall to a 60 day old uptrend channel support line down at $2.3510 today, a closer-in support point of $2.3755 could be tested if US equities reverse course and come under pressure. We suggest entering the long side or adding to pre-existing long positions on corrections.
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