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Corrective Action to Extend off Positive "Real Rates"

Commentaries & Views


Gold and silver prices are under pressure again this morning despite a significant downside reversal in the dollar. However, most commodities are tracking lower today with the global economic outlook in question. On the other hand, gold ETF holdings saw an inflow of 261,061 ounces yesterday and are now 9.3% higher year-to-date. More importantly, inflows to silver ETFs continue to gather pace with a 1.1-million-ounce inflow yesterday bringing the holdings to a year-to-date gain of 2.4%. Gold should draft minimal support today from Bank of America’s bullish forecast, with the bank projecting gold to rally to $2175. On the other hand, other analysts think gold has run into a serious fundamental headwind in the form of real yields turning positive. Indeed, seeing US 30-year Treasury Bond yields hit 3% yesterday was enough to turn sentiment negative for gold and silver. However, the IMF lowered its global growth forecast by a full 1%, and that certainly contributes to weakness throughout the commodity space today. Certainly, the Ukraine war is likely to continue for the foreseeable future, but some political analysts think Russia has revised its objectives lower and could settle for the capture of the Donbas region. Yesterday's broad-based physical commodity washout and general follow-through this morning serves to reduce inflation pressures, and this has prompted speculators to abandon gold and silver longs. The silver market has severely damaged its charts with the bull camp feeling the heat of surging interest rates and recent strength in the dollar. We see key psychological support at $25.00 failing to hold with a near term downside target seen down at $24.73.


While the PGM markets are justifiably being dragged lower by weakness in gold and silver, bullish sentiment is also punctured by the latest upside breakouts in US Treasury yields and a sweeping decline in oil prices. However, the palladium market should draft support from the launch of the Russian offensive, as that action extends sanctions even further into the foreseeable future. Fortunately for the bull camp, action this week in palladium prices has not produced chart damage, which leaves a recent consolidation low zone around $2301 as a credible support level.

The platinum market severely damaged its charts yesterday with the rejection of a multi-week high and a very poor close. A downside extension and temporary failure at the $975 level today projects prices to the next chart support point at $960. The bull camp holds out hope that the primary electric utility company in South Africa (Eskom) will disrupt production of platinum off what has been labeled necessary rolling blackouts.

MARKET IDEAS: We see the bull case for the precious metals temporarily punctured with more declines expected in the coming sessions. The primary bearish argument is mostly psychological, with real rates turning positive thereby increasing competition for gold and silver investment dollars. Unrelenting gains in US rates and general ongoing strength in the US dollar have finally tempered inflationary psychology. In the near term, we expect outside market forces to remain bearish and for gold and silver to fail at recent support points of $1,950 in June Gold and at $25.02 in May Silver, with those levels then becoming resistance.


Large Exchange Stock Inflows and Combined with Steady Chinese Rates is Bearish

Clearly, a wave of significant inflows to LME copper warehouse stocks has deflated talk of global supply tightness. LME stocks have increased in 22 of the last 31 sessions! On the other hand, they remain near the lower end of a 15-year range and are still 34,000 tonnes below year ago levels. The trade has arrived at the conclusion the jump in LME copper stocks is the result of Asian supply. The news from China regarding lockdowns seems supportive of copper this morning, with reports of a loosening of restrictions in Shanghai. Unfortunately for the bull camp, the PBOC left interest rates unchanged overnight, giving those predicting a slowdown in the Chinese economy fresh ammunition. Despite evidence of a rebuilding of copper warehouse stocks outside of China, the tight supply scenario has not been completely abandoned, as copper mine closures in Peru off long-term social conflict do not look to be easily resolved.

MARKET IDEAS: We see copper prices drifting down toward an uptrend channel support line drawn off the February and March lows, with that level becoming a near term target down at $4.62. Without word of an official Chinese stimulus package, we would look for copper to fall below the early April lows.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.