The bear camp has a slight edge in gold and silver
GOLD / SILVER
While part of the gains this morning in gold and silver are attributable to a slightly positive track across all commodities, we think flight to quality buying is present as well because of more signs that First Republic Bank might not survive. Apparently a first-quarter deposit outflow of $100 billion for the bank surprised the trade, and shares in the bank fell precipitously, which revitalizes bank contagion fears. Adding into the bull case for the metals is the prospect of a slight tempering of rate-hike fears for next week's FOMC meeting, as the pattern of soft US scheduled data this week is expected to continue today. Gold ETF holdings saw an inflow of 52,589 ounces yesterday, but they are still down 0.4% year-to-date. China posted a 1.9% first quarter increase in gold production, but they also reported a 12% gain in gold consumption. The increase in first-quarter output resulted in 85 tonnes of extra production, but consumption totaled 291.6 tonnes, dwarfing the increase in supply. Seeing gold waffle around unchanged yesterday in the face of strong demand signals from China and in the wake of a decline in US Treasury yields should be disappointing to the bull camp. Near term resistance in June Gold comes in at $2020.30, uptrend channel support is now $1,990.70, and pivot point failure would be seen with a trade below $1,982 today.
Seeing silver break sharply yesterday was not surprising given the ongoing negative view toward most commodities. However, July Silver rejected the washout and closed more than $0.50 above the spike low, in a possible sign of a technical bottom. It should be noted that silver ETF holdings saw a massive, single-day 8-million-ounce inflow yesterday, reversing the significant outflows of the previous five sessions and lifting the year-to-date gain in holdings to +0.7%. Limiting silver on the upside is a 5.1% increase Fresnillo PLC silver production during the first quarter, bringing total output of 13.1 million ounces. We see silver remaining vulnerable unless the early positive commodities vibe is accentuated by a surprisingly strong equity market rally. A key pivot point in July Silver today is $25.05, with resistance pegged at $25.65 and $25.53.
PGM
With a three-day range in July platinum of $75, a 24-hour recovery of $42, and a 2,237-ounce inflow to platinum ETF holdings yesterday, the bull camp appears to have regained control. To put the 6.4% year to date expansion in ETF holdings in perspective, a 10% increase in global holdings would have the impact of a 300,000-ounce increase in demand, which would equal the total deficit in the world platinum market from 2019. Supporting prices above the new pivot point of $1,075 is news that Amplats’ first quarter production came in at only 416,800 ounces, a 6.2% decline from last year. We see credible support at $1,075, but recent volatility could see the market temporarily slide below that level.
Yesterday’s failure in June Palladium happened despite a 6.2% decline in Amplats’ palladium production during the first quarter that pulled their output down to 278,100 ounces. The bull camp should be encouraged by the market’s bounce overnight and by a 1.5% single-day increase in palladium ETF holdings that resulted from an inflow of 6,785 ounces. Total holdings are now 6.1% higher on the year. Would-be short sellers should be advised that the market has fallen $200 since the April 18 Commitments of Traders report, which suggests that the spec and fund position could be close to posting a record short and would leave the market vulnerable to short covering. Weak and unreliable support today is seen at $1,481.MARKET IDEAS: We leave the edge with the bear camp in gold and especially silver but see the potential for a modest bounce today. At this point US scheduled data looks to have settled into a pattern of slowing, which should undermine physical and industrial demand prospects for both gold and silver. We see key pivot point support in July Silver today at $25.05 and then again at $24.74. Uptrend channel support in June Gold is now $1,990.70, with a pivot point failure seen with a trade below $1,982.
COPPER COMMENTARY
Strong chances a bottom has been forged.
While copper has managed to recover off yesterday's spike low, the magnitude of the bounce is feeble and not a strong sign of a technical bottom. However, strength in Chinese industrial metals prices this week, strong economic readings from a Bloomberg aggregate index of eight early indicators in China, and upbeat Chinese car and home sales expectations provide a very solid fundamental environment. China remains the primary focus of the copper trade, and a brightening view towards their economy should concern the bear camp, especially with the copper market building a moderate net spec and fund net short position into the low yesterday. Unfortunately for the bull camp, US economic data continues to project slowing, and with the two-day 8,050-tonne increase in LME daily copper warehouse stocks, some supply and demand issues continue to weigh on prices. Another bearish supply pressure is news of an increase in Anglo-American copper production of 28% in their latest quarterly results. A minimal offset to that large increase came from Poland, where KGHM showed March output declined 2%. With the approach and rejection of $3.80 in July Copper and signs of improvement in the Chinese economy, we would consider buying July bull call spreads.
MARKET IDEAS: With some sources suggesting 60% of world copper consumption is associated with China and the latest economic news from there coming in positive, this week's lows could be key lows if the global risk-off sentiment moderates. Adjusted for the 26-cent decline following the last positioning report, we suspect the spec and fund net short in copper has expanded dramatically, which could leave the market prone to sudden short covering rallies that could be accentuated by fresh fundamental buying.
