Feb 2 Early Morning Metals Commentary
Jordan Roy-Byrne, CMT
Platinum continues to act more as a precious metal than as a base metal. Precious metals have strengthened and it certainly helps that Copper is in the black. The big news of the day was an unexpected “no-change” in interest rates from the Reserve Bank of Australia, after they had previously hiked rates three times. These initial rate hikes were the first global signs of tight policy. This is positive for the metals and it comes at an opportune time; amid strengthening technicals.
Yesterday the April contract closed above $1525, thus validating the bottoming formation we pointed out in the last two updates. The market’s initial thrust went past $1550 before running into some supply. We’ve noted the importance of the $1550 level. A strong daily close above $1550 would give the market a chance to test the recent high. In fact, in looking at a daily chart, one has to believe that a close above $1560 would position the market for a retest of $1647. As we go to press, Platinum has broken above $1,550.
Copper futures are suddenly in the green as we begin the US session. The March contract continued its recovery yesterday after rebounding from support at $3.00. Predictably the rally continued until meeting ample supply at $3.10-$3.11. Prior to yesterday’s bottom, Copper shed 10% in just four sessions. Negative technicals along with a bevy of fundamental negatives (rising inventories, Chinese tightening, firm US$) have weighed on the market.
It is also important to note the most recent Commitment of Traders report. The data shows a surge in speculative long positions since December. Meanwhile, the commercial hedgers net short position is nearly at a five-year high. As we noted last week, market weakness will beget more weakness when there is a substantial speculative long position.
Turning to the charts, I see good resistance at $3.10 and $3.20. As long as $3.00 holds, the reprieve will continue. As we go to press, Copper has inched up to nearly $3.12. The rally in the metals is building despite a lack of weakness in the US$. Copper has a good chance for more gains. In regards to news, keep an eye on pending home sales data, which will be reported today.
Gold is higher by $9 and that is impressive follow through after yesterday’s ~$20 advance. The market got a boost when the Reserve Bank of Australia decided not to raise rates. The RBA had previously hiked rates the last three meetings. Their statement mentioned though not in exact words, Chinese tightening and escalating concerns over sovereign debts. Though this is likely a pause on the RBA’s part, it still buoyed a market (Gold) that yesterday emerged from bottom.
We should also note that the World Gold Council said that suggestions of a gold price bubble do not take into account ‘strong fundamentals.’ We couldn’t agree more. Reserve diversification as well as supply constraints were noted as several of the key fundamentals.
Turning to the chart, the market consolidated its gains in Asia and then moved higher in the European session. The market has emerged from a bullish consolidation and should continue unabated until resistance at $1120. We should note that the bulk of this ~$30 gain has come without any US$ weakness. The US$ is now in the red and appears to be only following Gold’s lead. In recent days we noted that Gold was holding up well in relative terms.
Silver continues to follow Gold. Now that Gold has turned, Silver has followed and is outperforming. The consolidation for much of today’s overseas session looks to be a bull flag, which projects a move to $17.20. The market should see resistance in the $17.00-$17.50 zone.