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Choppy to lower bias unless sentiment shifts 180 degrees

Commentaries & Views

GOLD / SILVER

While it appears that gold has lost upside momentum and has displayed erosive price action following a 2 1/2 month high on Monday, prices remain near three-month highs this morning. Yesterday gold ETFs added 204,574 ounces to their holdings, while silver ETFs saw an outflow of 457,979 ounces. The bull camp should be a little discouraged in the action in gold and silver over the last 24 hours, as several financial markets saw pressure off trade chatter of rising inflation. However, the dollar has halted its downside action and seems to have found credible support at the 90.00 level, and that is limiting for gold and silver. The markets will be presented with US consumer price index readings today, but estimates call for a very low bar of only +0.2% for the month of April. Gold and silver do not appear to be ready to rally off inflationary expectations and instead are likely to remain focused on low rates and currency valuations. Federal Reserve Gov. Bullard overnight indicated it was too early to talk about tapering support for the bond market. There will be another Fed speech this morning at 8 AM that deserves monitoring. At least five Federal Reserve governors see a bright economic outlook but also insist that accommodation is still necessary to avoid negative outcomes. Overnight Asian traders were labeling iron ore prices as "ridiculous," leading some to speculate that there has been some type of price limiting action against iron ore, steel, coal and perhaps copper from China, and that could be considered an indirect negative for gold and silver. A testament to the lack of bullish resolve in the precious metals is noted from the lack of interest in a fresh downside breakout in the US dollar earlier this week. Perhaps the CPI readings will spark inflation-hedge buying in gold and silver. Unfortunately for the bull camp, we suspect that a rally driven by inflation will also need broad-based risk-on sentiment and rapidly declining US and European infections. It should be noted that US daily infections from Saturday and Monday were the lowest since last June. Some financial firms are beginning to bring back employees in London. Further improvements in economic growth combined with surging physical commodity prices and dovish conviction by central bankers leaves a prescription for inflation in place. Critical pivot point support in June gold today is seen at $1,817.80 and then at a 2-month-old uptrend channel support line at $1,787.95. In July silver, critical pivot point support is seen at $27.18 with longer-term uptrend channel support today at $26.50. By Friday uptrend channel support in July silver increases to $26.68.

PGM

The PGM markets yesterday appeared to be in classic technical correction following significant volatility over the previous six trading sessions. Unfortunately for the bull camp, interest in PGM ETFs remains insignificant. Some suggest this could mean that the ultimate tops in both markets are not yet in place, as small investors have not moved into positions. Yesterday platinum ETF holdings increased by a noted 9,446 ounces while palladium holdings increased by mere 755. It is also possible that weakness in global equity markets and choppy action in gold and silver have left PGMs off balance. Near term corrective support in June palladium is seen at $2,888, with critical long-term uptrend channel support seen today at $2,866.50. That support line increases to $2,893.40 on Friday. In platinum, close-in pivot point support is seen at $1,214.50, with long-term uptrend channel support coming in at $1,199.50 today and rising to $1,207.65 on Friday.

MARKET IDEAS: Going forward we remain suspicious of the bull case, as the gold and silver markets are not responding favorably to classic bullish developments. Prices failed to rally off a downside breakout in the dollar or the broadening inflation fears that are impacting several financial markets. Critical pivot point support in June gold today is seen at $1,817.80 and then at a two-month uptrend channel support line at $1,787.95. In July silver, critical pivot point support is seen at $27.18 with longer-term uptrend channel support seen today at $26.50. By Friday uptrend channel support in July silver increases to $26.68.

COPPER

Expanded volatility temporarily overbought risk-on needed to cushion

With copper rejecting yesterday's spike down move and venturing back toward record prices this morning, the bulls retain a measure of control. While not a significant development, LME copper warehouse stocks have declined for 19 straight sessions and have reached their lowest level since March 21. A supportive outside market influence is the surge in iron ore and coal prices in China, even though there are rumblings that the Chinese government might attempt to squelch or reverse what appears to be out of control gains in several industrial commodities. Some press outlets have labeled the iron ore and copper rallies as "ridiculous," and that suggests some frothiness is in place. However, the copper market is likely to draft additional speculative long interest following a Bank of America forecast for $20,000 per copper pricing in London (London recently climbed above $10,000). Clearly, the copper market has entered a period of significant two-sided volatility with a four-day trading range of nearly $0.39 coupled with what might have been a record spec and fund net long positioning into this week's high. The strike threat in Chile remains in play with the company (BHP) apparently bracing for one after negotiations hit a dead end. According to BHP, there is a legal way to replace the workers in the event of a strike. That could be motivation for the unions to accept a deal. On the other hand, Chilean labor rules require the parties involved to undergo mediation for 5 to 10 days, and that could include continued operations. We think the breakdown in equities gives the edge to the bear camp, with fears of inflation in equities and Treasuries catching the copper market near historic highs with a substantial spec long positioning.

MARKET IDEAS: While we doubt the uptrend in copper has run its course or that a top is in place, we would not rule out further corrective action. However, the market’s ability to take out yesterdays' high in the early going today in the face of a higher dollar and weaker US equities suggest the bull camp is not easily discouraged. Solid support in the July copper contract is seen at $4.75, with a pivot point/failure point seen at $4.7160.

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