Early Morning Metals Commentary
Jordan Roy-Byrne, CMT
Heading into US trade, Platinum is in the red along with the other precious metals. The spot market is down 2% while the April contract down by 1.5%. The primary reason was growing concern over tighter policy from China. Bloomberg reported that China’s seven-day repurchase rate rose by 30 basis points to 1.64 percent, the biggest increase in a month. Goldman Sachs downgraded Chinese banks over concerns of higher borrowing costs and slower economic growth. As one can imagine, Chinese-related concerns are not unfounded.
Moving forward there are some big events that could move the market. This week we have the FOMC meeting, President Obama’s state of the union address, as well as Treasury auctions. Needless to say market participants will have quite a bit to digest. Turning to the technicals we point to long-term support (on the spot contract) at $1500 as well as support at $1400. Further losses in today’s or tomorrow’s session should arrest at $1500.
Copper was down in the Asian session but made a little recovery in European trade. The 1-day chart shows a potential double bottom as trade begins in the US.
Growing concerns over tighter policy in China as well as a firmer greenback contributed to the day’s losses. Bloomberg reported that China’s seven-day repurchase rate rose by 30 basis points to 1.64 percent, the biggest increase in a month. Furthermore, Goldman Sachs downgraded Chinese banks while expressing concerns over higher borrowing costs and slower growth in China.
While China has been the recent fundamental driver, look for US events to impact the trade as the week matures. All this week the US has Treasury auctions, the FOMC meeting and President Obama’s first state of the union address. While the market is focused on tighter policy from China and the potential for tighter policy globally, one must consider the potential for a market-moving announcement from Obama. Perhaps a second stimulus package?
Turning to the charts, we see good near term support at $3.25-$3.30/lb with strong resistance from $3.45-$3.50.
On the spot contract, Gold is back down close to Friday’s low at $1085. Friday’s low was $1080. Resistance in today’s session figures to be $1090-$1095. Look for the metal to recover from these early lows, as Friday’s low should provide support. Gold can blame US$ weakness along with adverse news from China for causing its ~$10 fall on the spot market. China has been a big buyer and supporter of Gold. Tighter policy from China could equate to less demand for the yellow metal, at least in the near term.
Moving back to the US, there is a lot of market-moving events straight ahead. There are several Treasury auctions this week, the FOMC meeting and President Obama’s first state of the union address. Your humble author notes that often times the US$ is weak ahead of both Treasury auctions and Fed Meetings. Alls will be interesting to watch as Gold tests its December low at $1075. How will Gold react if the market is reassured that the Fed isn’t tightening anytime soon and Obama announces more simulative measures? Traders will have to consider that and the many other potential outcomes along with the context of the aforementioned technical support.
Yesterday we noted that Silver had resumed its underperformance to Gold. In other words, Silver is lagging Gold. This is nothing new to seasoned market-watchers as it is typical when the precious metals are not strong. Whereas Gold is down near 1%, Silver is in the red by ~2%. The same short-term factors ailing Gold (Chinese tightening and US$ strength) are plaguing Silver.
Technically speaking, Silver is the most interesting of these metals. The market is at risk of breaking an uptrend or topping pattern that began in September of last year. A close below $17.00 would trigger some downside momentum that would increase with a close below December’s low of $16.72. The next strong area of support would be $16.00.
Moving forward, we noted the many things (or events) that could impact Gold in the coming days. Silver will take its cues from Gold and react accordingly. That means a more volatile reaction.