Written Commentary
GOLD & SILVER
The path of least resistance in gold is down with hawkish dialogue from the Chicago Fed President yesterday, November Swiss gold exports dropping 28% (mostly because the world’s second-largest consumer India imported 67% less gold from Switzerland) and from a lack of corrective action in the Dollar following last weeks compacted rally. However, an offset to the negative demand signals from declining Swiss gold exports is the fact that Chinese purchases from Switzerland increased by ten percent on 25 tons in sales versus the lower 16.4 ton sales to India. With both volume and open interest falling off and given the reversal from last week’s highs, we suspect the bullish bias from last week has run its course. In a minimally supportive development, the IMF yesterday indicated that the Bank for International Settlements (BIS), Poland, and Czech central banks added gold holdings last month while Uzbekistan lowered their gold holdings. Silver prices were able to rally overnight as the weak EU CPI data kept pressure on Eurozone interest rates, giving hope for a rebound in silver demand from the industrial sector. Silver should also benefit from a large 5.7-million-ounce single day inflow to silver ETF holdings yesterday which represents a single day inflow of nearly 1% of total global silver ETF holdings. From a technical perspective, the bull camp should be concerned with a very high net spec and fund long positioning which could be at or above the highest spec long readings this year especially if adjusted for the gains after the report was measured. In conclusion, we give the edge to the bear camp with the next critical US scheduled data points not seen until later in the week in the form of the PCE reading which in turn will likely set trends in precious metal markets for the rest of this year.
COPPER
Despite a three-day low overnight, the copper trade continues to show bullish resiliency despite residual uncertainty toward the Chinese economy. However, the trade this morning embraced the idea of tight supply again which in turn was the primary force behind the October through early December rally of $0.37. While not the primary reason for the renewed concern of tightening global copper supply, LME copper warehouse stocks have declined in 13 of the last 21 days with cumulative daily declines in inventories becoming very significant. Even the demand side of the equation has shifted in favor of the bull camp with the trade shaping news of record Chinese smelter production last month into a positive on the premise that demand in China is picking due to the need for energy transition projects requiring refined copper feedstocks. The extent of the bullish revival is quantified by Bloomberg coverage overnight suggesting the anticipated global surplus of copper “has all but dissipated”. Along those lines Deutsche Bank is now calling for a 300,000-tonne deficit in the copper market next year due to all the production disruptions. This is a flip from their previous estimates of a slight surplus.
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