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Solid support levels found Infrastructure Plan could provide lows

Commentaries & Views

OUTSIDE MARKET DEVELOPMENTS: Global equity markets overnight were mixed with Asian stocks mostly lower, Russian, Australian and Spanish markets higher, and US equities under minimal pressure. Economic news included softer than expected Japanese industrial production for February, much better-than-expected Australian building permits for February. and most importantly a stronger than expected Chinese nonmanufacturing and manufacturing PMIs. Also, there were declines of 8000 unemployed in Germany for the month of February, a stronger than expected UK GDP reading, and a steady EU consumer price index reading for March. The North American session will start out with a weekly private survey of US mortgage applications, followed by the March ADP employment survey, which is expected to have a significant increase from February's 117,000 reading. The February Canadian industrial product price index is forecast to have a strong increase from January's 4.0% year-over-year rate. February pending home sales are expected to have a minimal decline from January's -2.8% reading. The March Chicago PMI is forecast to have a modest increase from February's 59.5 reading. Atlanta Fed President Bostic will speak during the morning US trading hours. Earnings announcements are expected from Walgreens Boots Alliance and Acuity Brands before the Wall Street opening, with Micron Technology reporting after the close.

The bull camp in gold and silver are lucky after a strong upside breakout and upside extension in the Dollar Index failed and the Index fell sharply back overnight. Overall, the markets should be cheered by Chinese PMI readings overnight, as that tamps down the fear that the Chinese post-pandemic recovery was stalling. With Chinese nonmanufacturing PMI in March jumping significantly and registering the biggest reading since the reopening last March, the prospect of improved Chinese physical demand is on the horizon again. We do not expect any improvement in physical demand in China or India to be known until well after the fact, as key World Gold Council statistics are released on delayed quarterly basis. Unfortunately for the bull camp, the gold charts remain extremely weak, and a series of lows around $1673.30 offer thin support in against a further slide down to $1647.60, which would close a gap left in April 2020. Another negative that continues to press gold down is a pattern of outflows from Gold ETFs, with gold holdings yesterday dropping for a seventh straight session. Silver ETF holdings posted a small gain, leaving net purchases at 37.1 million ounces. Outflows from ETFs for both metals continue, as do the headlines the generate. In other words, sentiment toward gold and silver as an investment remains negative, and it could take a major leap into global risk-on recovery dialogue to alter the downward track in precious metals. From a long-term perspective, the potential for another massive spending bill including infrastructure spending and likely a barrel full of pork could be the catalyst that renews "reflation," which in turn could set the stage for inflation later-on if the US infection rate falls below 39,000. While in increase in taxes is proposed within the massive infrastructure spending program, US debt is set to expand rapidly. For the near term, both gold and silver might have reached very solid fundamental value, but we see the markets remaining vulnerable, with gold likely failing at the previously mentioned consolidation low support point of $1673.30 and May silver having a critical but unreliable support point at $23.88.

The PGM markets got a bullish shot in the arm from overnight news of the South African Public Investment Corporation investing $7.4 billion in platinum group metals investments, with the fund indicating the rally will sustain longer than expected and will likely see more dynamic supply and demand changes ahead. It should also be noted that platinum ETFs yesterday saw an inflow of 6317 ounces, bringing the year-to-date net gain to 2.1%. Palladium ETFs saw an inflow of 2755 ounces, with those holdings 1.6% higher on the year. With Chinese PMI data overnight showing the strongest readings in a year, the prospect of increased PGM consumption from auto catalyst production should be improved, and platinum should find the developing consolidation support at $1,150, a credible low zone. Traders are watching the palladium premium over platinum, as the spread between the two markets could encourage more platinum usage ahead. Unfortunately for the bull camp, rotation of input materials is likely to take place in areas other than auto manufacturing, and therefore platinum bulls might have to be content in the market being dragged higher by palladium. Support for June palladium comes in at $2,592.50 and $2,567.50. Key support for July platinum is obviously the $1150 level, and a failure at that level would project a slide down to $1139.90. We caution against selling palladium and platinum at current levels, as the objective on those trades might be limited and could also present significant risk.

MARKET IDEAS: The metals complex is bifurcated, with the PGM markets in favor and gold and silver out of favor. However, gold has reached what could be solid support, with silver less predictable and likely waffled with wild swings around the $24.00 level. The gold and silver markets are now cheap and should respect support, but at present they lack a definitively bullish fundamental theme to spark sustain gains.


The technical picture points down but infrastructure might support

GENERAL: Technical traders are pointing to copper’s first monthly decline in 12 months as a sign of a developing downtrend in prices. If it were not for the stronger than expected Chinese PMI data released earlier this morning, copper might have sustained its four-day downside breakout and taken out critical support at $3.9420. The market was presented with news that J.P. Morgan Chase had reduced its position in Chinese copper by a modest amount, which could embolden the bears. On the other hand, the looming presence of what is expected to be a record massive US infrastructure spending bill should foster has improved US copper demand expectations, and that combined with the very positive Chinese PMI news overnight should increase the risk to shorts in copper. It should be noted that China's copper scrap imports during January and February were 60% larger than last year, which underscores improving demand but also results in lower demand for refined copper imports. In addition to the continued strength of the dollar, copper continues to be pressured by consistent inflows to LME copper stocks which has pushed global copper exchange stocks (LME plus Shanghai plus COMEX) above 400,000 tonnes, and that indirectly reflects lukewarm global demand in the last two months. We would caution sellers, as the details of the Biden Administration infrastructure plans are expected to come out during today's session, and US demand expectations will likely improve substantially.

MARKET IDEAS: Stronger than expected results for NBS Chinese March PMI readings overnight should increase fundamental support for copper. A critical technical support level sits just below at $3.9420. With the month ending today, we could see a wave of short covering/profit taking.

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