Morning Metals Commentary

Jan 28 Early Metals Market Commentary

Jordan Roy-Byrne, CMT

Platinum

Platinum futures are up nearly 2% as we begin the US session. With Copper down slightly, and Gold and Silver higher, Platinum appears to be acting as a precious metal today. The US$ weakened following President Obama’s state of the union address. Meanwhile, today two Platinum producers (Lonmin and Aquarius) announced lower quarterly output.

Such factors along with an extreme oversold condition (in terms of hours rather than days) can explain the near 2% rise in trading overseas. We show a chart that doesn’t include today’s action. What we see is strong distribution in four of the past five sessions. In other words the market has had trouble holding gains and has closed closer to the lows than the highs. While such selling is bearish in the larger picture, it has left the market very oversold and due for a bounce. The first area of resistance is ~$1530 followed by $1550. Going forward, weakness will resume upon a close below $1500.

Copper

As we pen this, Copper is hovering around unchanged. Most contracts are lower by a penny or two. Today in China, the Chinese banking regulator told banks to further scrutinize property loans. As we’ve noted recently, we’ve gone from fears of tightening to actual tightening in China. Very short-term rates are rising and banks have been ordered to raise their reserve ratios.

Turning to the chart, yesterday we wrote that a weekly close below $3.30 would send the market to $3.10. As soon as the market fell below $3.30 it went as low as $3.17.  As you can see, the market is hanging on a trendline. On the low end watch $3.10 as a support level. During the past 24 hours $3.17-$3.18 has been support. If the market can’t hold $3.17 today then a move to $3.10 is very likely.

Gold

Gold for February delivery is up $6 to $1090/oz. The other futures contracts show a $5-$8/oz gain. Interestingly, the US$ is basically flat. It was higher in the early Asia trade but lost gains and that continued until reversing higher in Europe. As we begin US trade, the greenback (index) is in the black by nearly a dime. The buck remains buoyant even after a failed test at 79.00, which will be key resistance.

There wasn’t anything new from neither President Obama nor the Federal Reserve. If the economy weakens, more stimulus is coming and that is good for the yellow metal. The question remains if the mortgage market can stabilize in the absence of Fed support. If unemployment continues to rise, it is highly doubtful. In other news George Soros in Davos said that Gold was the ultimate bubble. Traders are not paying attention as Gold is holding up well amid a flat to partially higher greenback.

For February Gold, $1080 remains important support while $1090-$1092 is the current resistance level. A close below $1080 and the market is likely to fall to $1030-$1050. A daily close above $1100 would likely confirm an important bottom. As you can see from our chart, the market is either going to hold support at $1075-$1080 or will plunge towards $1025-$1030, likely forming a bottom there. The bottom row of the chart shows Gold already bottoming against the commodity sector. In real terms, Gold is making a bottom here. Eventually that is bullish for Gold, but not necessarily for the next few days.


Silver

After dramatically underperforming Gold in the last few sessions, Silver is rebounding in both real and nominal terms. It is not difficult to see why as the market is very oversold in the short-term and very close to strong support at $16.00. When a market nears good support in an already oversold state, it is likely to rebound. As you can see from our chart, Silver has good support at $16.00 and above. Yesterday’s low was actually higher than Wednesday’s low. So the market is digging in. Watch $16.60-$16.70 as a close above this resistance will confirm that a bottom is in place. We are referring to the February contract.