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A major trend decision possible at 12:00 central time

Commentaries & Views


It appears that gold and silver sit at a very important juncture today, with prices perched moderately above recent consolidation lows and facing a key fundamental point with today's US 10-Year Treasury Note auction. At least to start today, the dollar is within striking distance of this week's lows, but it to will likely have a volatile reaction to the auction results at noon. From a demand perspective, liquidations of gold and silver ETFs continue, with gold year to date net sales at 4.7 million ounces. Silver ETFs continue to see liquidation as well, rounding out a wave of investor fears toward the precious metals. On the other hand, the massive surge in prices yesterday should put the bear camp back on their heels, especially if US equities rise sharply again and in turn pull commodities up. Apparently, the metals are not lifted by February CPI inflation news from China, perhaps because some Chinese prices like pork, nickel, iron ore, and copper have shown corrective action this week. From a short-term perspective, the bull camp probably needs a decline in the June Dollar Index back below 91.85 today or a very strong 10-Year Note auction to extend this week's bounce. Unfortunately for the bull camp, to alter the downtrend that has been in place since the beginning of the year might require a rally back above downtrend channel resistance at $1771.20. The silver market saw a third straight outflow from ETF holdings yesterday, and overnight reports suggest slack demand for silver in India. To avoid a reversal/failure on the charts, silver would probably require consistent trade above $25.45 today. We are not sure whether the rallies yesterday were the result of a downtick in US interest rates, but the primary influence of the trade is likely to be the 10-Year Note auction.


Clearly the platinum market joined with gold and silver in the sharp recovery rallies yesterday, and the market looks to continue to correlate tightly with those markets again today. On one hand, platinum could be discouraged by the 885-ounce outflow from ETFs yesterday, especially with the World Platinum Investment Counsel today indicating the market could be roughly balanced this year after a record deficit last year. However, the WPIC also expects demand to recover and the deficit projection to possibly expand from initial expectations. Reuters this morning is pointing out that platinum remains the "cheapest" of the precious metals, with expectations for increased automaker consumption and new demand from a hydrogen economy underpinning long-term bullish views. However, a fully reversal of the downtrend pattern in place since the February high could require a trade back above a downtrend channel resistance line today at $1,203.30. Overnight, Bank of America raised its platinum price forecast to $1242 from $1100 for 2021. Like several other commodities, platinum needs a straightaway extension of global market and macroeconomic optimism to extend this week's gains. With the palladium market breaking out to its lowest levels since early February yesterday in the face of significant gains in the rest of the precious metal and a major risk-on environment from equities, it is apparent that it is out of favor. Bank of America cut its 2021 palladium forecast to $2529 from $2563. However, palladium ETFs saw inflows of 3061 ounces yesterday, bringing the year-to-date gain to 5.7%. The next logical support level in June Palladium is $2,250, and it could take a rally back above $2,350 to reverse the downtrend.

MARKET IDEAS: We are skeptical of this week's new-found bull case, especially without conclusive assistance from outside markets again today, such as Treasuries (with more price gains needed through the noon auction). Deep down we are doubtful that gold, silver, and platinum have fully shifted their focus toward hope of improved physical demand, and it could take several major, consecutive, "risk on" days to for the markets to benefit from expectations of strong physical demand from what has been a constantly shifting fundamental focus between that safe-haven and currency factors


Vulnerable unless optimism from equities continues to flow

Several recent, highflying Chinese industrial commodities have shown corrective action this week, and that has dampened speculative interest for copper. Reports are that the large fund reportedly buying Shanghai copper over the last month has begun to lower its position, which is not surprising considering that LME copper warehouse stocks have begun to post moderate daily inflows. This suggests that the weekly Shanghai stocks report could show an inflow on Friday. Copper is trading higher this morning off a potential strike threat at the Antofagasta mine in Chile. Apparently, the unions rejected the latest wage offer, thereby increasing the chances of a shutdown. Ongoing declines in Chinese iron ore, nickel, and steel rebar prices should be monitored, as many traders and economists will attempt to use that price action as some form of economic signal. Copper looks vulnerable to more declines unless the bull camp is bailed out by another round of optimism from large gains in equities. Adding into the bearish condition is a prediction from the Peruvian Mines Minister that production there will hit record levels this year at 2.5 million tonnes.

MARKET IDEAS: Apparently the copper market has not embraced the idea that the severe portion of the pandemic has passed in the US, and the market has not responded to a strong macroeconomic environment this week, as prices have simply waffled around both sides of $4.00 for four straight sessions. We therefore leave the bias pointing down in copper, with solid support seen down at $3.9535. Traders should be aware of a major trend decision at midday off the 10-Year US Treasury Note auction.

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