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The bias remains up, but bullish buzz is lacking

Commentaries & Views

GOLD / SILVER

With another lower low in the dollar to the lowest trade since January 27, gold and silver start the Wednesday US trade with a measure of support. However, they are showing early price divergence, and gold and silver ETFs both saw outflows yesterday. While the outflow from gold ETFs was modest, it was the third straight day of declines. Even more damaging for the bull camp was the fact that silver ETFs reduced their holdings by 16.2 million ounces, for the biggest one-day decrease since May 5, 2011. While the gold market has not been overly concerned about the People's Bank of China moving to withdraw excess liquidity, PPI and CPI figures were offsetting last night, with producer/factory gate prices jumping and consumer prices falling back into deflationary status. Given the flareup of infections in China and mixed inflation data, the PBOC should not alter its supportive policies anytime soon. It should be noted that Chinese factory prices forged the first increase in a year, crude oil made another higher high overnight, lumber continues to soar, and platinum prices have reached six-year highs, so inflationary prospects should provide some spillover cushion for gold and silver prices today. Chinese retail outlets are reporting strong jewelry sales over the last several months. And while 2020 gold demand in China declined by 35% from the previous year, demand recovered in the final three quarters, and it is considered auspicious to buy gold ahead of the New Year holiday. Gold prices in India gained overnight on firm spot demand, and prices in Hong Kong and Shanghai also closed higher. Zimbabwe reported January gold output declined 61% from the previous year. While the general bias is pointing up in gold, the rate of gain this week and the level of bullish buzz is not terribly impressive, and prices enter the session today almost in the exact middle of the last four weeks’ sideways consolidation, which could allow for choppy two-sided action. While the charts in silver are also bullish, seeing investors vacating ETFs at an aggressive pace should be a troubling sign for the bull camp.

PGM

With another new high for the move in April platinum this morning, the market looks poised to extend, in what could be the beginning of a significant rally. As recently as last week, nearby platinum prices were only at 50% of record levels, and a burst of headlines touting significant gains in platinum futures prices should stimulate even more inflows to platinum ETF holdings. Yesterday those holdings saw an inflow of 4,903 ounces, which brings the year-to-date gain to 1.4%. With holdings approaching 4 million ounces worldwide, they are already approaching 75% of the average annual global platinum production of the last six years! The next credible price target is derived from the weekly charts and the early 2020 high situated $58 above the higher opening this morning. We remain bullish toward as long as the April contract respects key support at $1,188. Unfortunately for the palladium bulls, that market is showing signs of faltering instead of rising in sync with platinum. A measure of long platinum/short palladium spread trade action could be limiting palladium, but bullish demand stories for palladium have been virtually nonexistent of late. Therefore, would not rule out a return to $2,280 in March Palladium later this week.

MARKET IDEAS: While we give the bull camp a slight edge in the precious metal markets early today, it not definitive with the trade repeatedly shifting its daily focus among several themes. This makes it difficult for the bulls to fully embrace their views. The recent decline in the dollar is helping to solidify chart support, but we do not see the fundamentals to prompt a significant run-up in gold and silver without a major euphoria wave sparked by declining US infection counts. In the near-term we see initial resistance at $1,850 in April Gold and at the 200-day moving average of $1,871.80, with key support pegged at $1,830. Similar resistance in March Silver remains at the top of a gap from the end of January at $28.15 with critical support is seen at $26.92.

COPPER

The bulls extend control off equities, $ and Chinese inflation

A definitive upside breakout in copper today highlights a bull camp undeterred by a 9,983-tonne weekly build in Shanghai copper warehouse stocks. (It was released early because of the Chinese holiday tomorrow.) London prices forged an eight-year high with the market focusing on tightening supply and undying hopes of a US stimulus package. Additional supportive forces are a wave of new all-time highs in various global equity markets and further downside action in the US dollar. In our opinion the significant range up move this week suggests copper is signaling an improvement in global economic conditions directly ahead. While the press has not fully embraced or covered extensively the noted downtrend in US daily infection counts, with February 9 the lowest daily infection reading since October 28, we think that storyline is a major input to the current rally.

MARKET IDEAS: The path of least resistance is pointing up in copper, as the charts clearly shifted bullish early this week, the dollar is tracking lower, and the trade continues to embrace the idea that US will get stimulus before the end of the month. Near term targeting is the January high at $3.8140, with a secondary upside target at $3.84.

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