Jan 27 Early Metals Market Commentary
Jordan Roy-Byrne, CMT
The spot market is currently at $1517/lb, right near the levels seen as we penned yesterday’s commentary. On most contracts, Platinum is down about 1%. Yesterday in US trade, the spot market continued its losses, only to reverse nicely after testing support at $1500. Platinum was soft in the Asian session, dipping towards $1500 only to reverse higher again. This could be a short-term double bottom. The market has overhead resistance in the $1530-$1540 area. Looking at the daily chart, the market is in a short-term consolidation or correction until it can close above $1550.
Today all eyes or ears will be on The Fed as they wrap-up their meeting. It is unlikely that we hear any breaking news, as the Fed likes to telegraph things in advance. To us, the trade (before and after the meeting) will be to the upside as few expect any signs or hints of tighter policy in the future. Unemployment continues to rise and that prevents the Fed from raising rates. The tighter policy (the end to the purchases of mortgage-backed securities) is mostly priced into the market.
Copper is currently down 1.6%-1.67% on most contracts. The spot market is currently at $3.28/lb as it lost nearly 2% in Asian trade. Concerns over tighter monetary policy that could impact economic demand, caused the fall. As we noted yesterday, such concerns are well founded. The market is responding to events in China, rather than the US market, as China’s demand plays a larger role.
Turning to the charts we see support at $3.30. A weekly close below $3.30 could send the market down to support at $3.10. Over the next day or two, look for $3.34 to be resistance. A move beyond that would target $3.40.
Today all eyes and ears will be on the Fed decision. Pundits will spend a lot of time obsessively analyzing every sentence and every word. With high unemployment, a fledgling recovery and the recent downturn in markets, we highly doubt anything negative comes out of the Fed. That goes for today and in the foreseeable future.
On the spot contract, Gold is down fractionally as its pared losses in the last several hours. In the same time frame, the US Dollar index about 0.35 points. For most of the Asian session Gold weakened as the US Dollar strengthened. In the very near term, Gold continues to take its cues from the US Dollar.
The US Dollar Index remains buoyant but is struggling with overhead resistance at 79.00. However, the market’s buoyancy does suggest that it eventually pushes above 79.00. There is also resistance at 80.00 and 81.00. While Gold is clearly in a corrective state, it may be mitigated by the greenback’s struggles with overhead resistance.
It is hard to envision something coming from the Fed meeting that would be bearish for Gold. The Fed will not introduce tight policy until unemployment declines or the market forces its hand. Our longer-term view is that more monetization will be needed and this could eventually force the Fed to begin hiking rates.
Technically speaking, we suggest keeping an eye on the recent lows near $1080. The market is trying to hold this bottom and in doing so, would hold above the December bottom. A daily close above $1100 would give us confidence that this bottom would hold over the next few weeks.
Once again we note that Silver is underperforming Gold. We give ourselves a little shoulder tap for this repeated observation. On the spot contract Silver is in the red by 1.5% compared to about 0.5% for Gold. Yesterday Silver declined through and closed below the critical $17.00 level. The next crucial support is near $16.00.
Interestingly, we are seeing a little bit of a divergence between the metals as Silver has broken its December low while Gold continues to hold above it. As we finish our thoughts we see that the metals have taken a dive in the last 15 minutes or so. Watch Gold at $1080 (today and tomorrow). If Gold can continue to hold above $1080 while Silver makes new lows, it would be a bullish divergence. In that case Silver would reverse to the upside. Once again, Silver will take its cues from Gold.