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We think the brunt of the selling has run its course

Commentaries & Views

GOLD / SILVER

While the lift from the GameStop incident came and went with silver prices exploding and then imploding, we still expect 2021 to see silver settle into an uptrend. It should be noted that the massive run-up on Monday was accompanied by a single-day inflow of 34.6 million ounces into Silver ETFs. And despite a massive washout yesterday, ETF holdings saw an inflow of 2 million ounces, putting the year-to-date growth at 8.2%. The US Mint and the Perth Mint are seeing significant demand, with the US Mint labeling it as “exceptional.” There are also reports that demand for coins and bars is shifting from gold toward silver. However, gold coin sales at the US Mint last month reached 220,500 ounces, for the highest monthly sales total since 2009. It appears that energy prices are in an upward track, and that combined with a series of hot inflation readings (US manufacturing prices paid from last week and European CPI & PPI this morning) certainly creates the potential for inflationary conditions. Other forces that could gold and silver are signs the Democrats may move unilaterally on a stimulus package and a pattern of moderating US infection counts. On the other hand, market and media attention on the daily infection counts remains modest, and it could take a series of daily infections below 100,000 to bring the subject to a dominant position in the marketplace. The dollar continues to show signs of strength, thereby creating some currency related resistance for metals and all commodities. Today's bounce is to be expected after yesterday's beating and therefore it could take a couple days of respect of support down at $1830.40 in April gold and $26.35 in March silver throughout the session today to signal an end to the liquidation track. On the other hand, the longer-term outlook for gold and silver remains robust, with inflation clouds forming on the horizon, the end of the pandemic becoming more likely, and the Democrats poised to use their majority to force a stimulus package to fruition.

PGM

While the palladium market held up impressively to the broad-based liquidation wave in the other precious metals yesterday, we suspect it was partially the result of unwinding of long platinum/short palladium spread trades. While Chinese data overnight bested expectations, the services PMI reading was 4 points below the previous month and the status of the infection counts in China remains unclear. Both of those factors should thicken resistance for palladium, which has been the primary benefactor of the explosion in Chinese vehicle demand over the last several years. On the other hand, palladium ETFs saw a shocking inflow of 12,163 ounces yesterday, lifting the year-to-date gain in holdings to 2.1%. With the 200-day moving average respected in the previous three trading sessions at $2198.70 and even number consolidation low pricing of $2200, palladium looks like a “buy.” Platinum saw a minimal inflow into ETF holdings yesterday of 649 ounces, and the year-to-date expansion is only 1.1%, but yesterday it largely sidestepped the massive liquidation that gold and silver experienced. The platinum market appears to have a solid foundation, but fresh longs might have to risk positions to $1054.00 to maneuver through near term volatility. Some of the liquidation on Tuesday could have been the result of an increase in platinum futures margins by 11.1% putting the margin at $4,400 per contract.

MARKET IDEAS: Now that the Reddit/Internet activist retail frenzy has abated and gold and silver have corrected their overbought conditions with the large washout yesterday, we expect both markets to respect support and prepare to rally off classic commodity market fundamentals. The markets are not yet embracing early signs of price inflation from Chinese industrial material prices, the prospect of rising US wages, surging PPI and CPI data and crude oil prices climbing above $55 (in the face of serious demand problems), those forces could become frontline issues soon. The internet trading frenzy put silver and gold in the global headlines, and long-term investors likely took note of that action. But to see actual inflation, it would probably require widespread belief that the pandemic is truly winding down and that opening-up action is gathering momentum. Those looking to be long April gold might have to risk those positions to $1,799, while those looking to be long silver might have to risk those positions to $25.38.

COPPER

We continue to look for favorable prices & timing for long entry

Like other metals and industrial commodities, copper is facing suspect demand conditions with the charts also favoring the bear camp. The market continues to respect the $3.50 level, increasing the credibility of that support pricing. But the lack of a significant recovery yesterday in the wake of news that Chile's Codelco copper mine production declined by 16% in December from year ago level, highlights a prevailing bearish view in the copper market. It is possible that traders are unwilling to assume fresh long positions with the approach of the extended Chinese holiday and the recent economic data from China being discouraging. Overnight, Chinese services PMI readings for January did come in better than expected, but the January reading was significantly below the December number. China also continues to see volatility in its Repo market, with the PBOC forced to undertake market operations to correct an overly aggressively draining of reserves last week. LME copper warehouse stocks have broken their pattern of declining numbers with a couple of daily builds. With March copper declining $0.10 from the last COT positioning report, the overdone spec and fund long positioning is probably ratcheting downward.

MARKET IDEAS: While we think March copper will respect consolidation low support at $3.50, we will not rule out the potential for periodic failures at that level and a possible temporary retest of $3.45. We would view that level as an opportunistic long entry point.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.