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Technically the bias is up, but bull fundamentals are lacking

Commentaries & Views

GOLD / SILVER

Despite another lower low in the dollar this morning, both gold and silver are starting off under minor pressure. Unfortunately for the bull camp, ETFs in both metals saw more outflows yesterday. Gold holdings are currently down 6.8% on the year, while silver holdings remain 3.8% higher. Overnight, China posted its end of February gold reserve holdings, which were unchanged at 62.6 million ounces. On the other hand, the Hungarian central bank has reportedly tripled its gold reserves and now holds the highest per capita reserves in central and eastern Europe. While it would not appear that today's US scheduled data will have an impact on the precious metals, an afternoon speech from the President could temporarily impact prices. The speech is likely to have more impact on industrial metals given the focus on infrastructure, but depending on other policy initiatives, a quick passage of the President's plan is unlikely. While it feels like gold and silver have entered another stealth rally, it is possible that positive US and Chinese data has increased the chance of reflation, again. The turndown in the dollar provides both markets with currency support, but we doubt that influence alone will be enough to completely reverse an entrenched three-month downtrend. On the other hand, gold and silver did climb above several key technical points, which could shift some funds back into being buyers. We do not detect a bullish buzz at present and feel that a return to reflationary buying would require signs that the US infection rate is dropping quickly due to accelerating inoculations, which have surpassed 3 million doses per day. So far, the US infection rate is not falling, as Monday saw more than 62,000 infections. In other words, without an all-clear on the US infection front, it could be extremely difficult to convince the precious metal trade that inflation is beginning to develop. A potential key pivot point for June gold today is seen at the 50-day moving average of $1769.50, and we will remain bullish as-long-as the market remains above $1721.60. As for silver, we see the market tracking with equities and energies, and the mid-session speech from the President is likely to impact it more than gold. May silver has been waffling around its 200-day moving average over the last nine sessions, with that average today pegged at $25.10, and that could be a pivot point into today's close. In the near term we do not expect to see a return of ETF investment until May silver regains $28.00 and/or the headlines begin to tout bullish prospects for silver.

PGM

The palladium market was likely lifted by strong US light vehicle sales from earlier in the week but also from signs of a strong US labor market (JOLTS report) and from signs of strength in Chinese services PMI, as that suggests China's appetite for vehicles will continue to expand. Obviously, the palladium market retains the leadership role in the complex, with the platinum market seeing less lift from positive economic conditions because of its heavy reliance on diesel engine catalytic converter demand. However, it does appear that a temporary shift has taken place overnight, with platinum making a new high for the move today in the face of a hard washout in palladium. Yesterday, palladium ETF holdings declined by a moderate 1,906 ounces, but those holdings remain 1.1% higher on the year. While we think palladium will eventually revisit the March high around $2,750, critical support moves up to $2,616 this morning, with closer-in support seen at $2,620.50. July platinum initially failed at the even-number $1,200 level yesterday, but the aggressive rebound in the face of yesterday's sharp washout in palladium hints at spread trading. Overhead resistance pricing is $1,262, but platinum will likely need a robust positive equity market reaction to the President’s speech today to proceed directly to the next key chart point up at $1,265.

MARKET IDEAS: While it appears that the trend has shifted up in gold and silver, we remain skeptical and suspect the rate of gains will be muted and hard fought. We think daily US infections need to breakout to the downside (below 39,000) to signal an end to broad-based US lockdowns, which in turn should lift many commodities. Seeing the infection count on Monday (the most recent reading) jumping back above 62,000 certainly dampens interest. We see gold eventually retesting the $1,756 level (top of the March consolidation) after today’s speech, with silver testing the next key point of $25.55.

COPPER

The bias is down with a $4.03 target unless infrastructure speech supports prices.

With LME copper warehouse stocks jumping 6900 tonnes overnight, the pattern of rising global stocks continues to limit the market’s attempts to regain the top of the last 35 days’ consolidation at $4.19. Prices have spent most of the early trade today in negative territory, which give the bears camp confidence. There is a gap left by Monday's opening starting down at $4.0240, and we would recommend aggressive traders get long at that level, especially ahead of the President’s infrastructure speech, which is expected to happen at mid-session. A potential limiting force is a halt to the historic gains in Chinese steel and rebar prices, which have been supportive to copper. Copper could see some support from a Bloomberg story projecting the bull market to resume this year after a global production decline last year. European data points were positive overnight, and it is probably unwise to sell copper ahead of the speech expected to detail massive spending on US infrastructure. Given severe electric grid problems in February from a massive winter storm, legislators and the President are likely to announce several projects to shore up the aging US grid, and that should boost US copper demand expectations.

MARKET IDEAS: With the May copper contract yesterday unable to take out the Monday spike high and seemingly settling into a pattern of lower highs, a temporary retest of the $4.02 level is possible if the Presidential speech fails to spark a rally. It seems that copper prices have once again found solid resistance near the top of a 35-day sideways consolidation. However, we advise against purchasing May copper this morning above $4.03, as fresh long positions might have to use risk levels below $3.90.

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