Metals Commentary - Uncertainty Rampant if Russian Exports Halted; Gains Will be Explosive
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GOLD/SILVER
Given the three-pronged invasion of Ukraine overnight internal fundamentals in the gold and silver trade are unlikely to be key driving forces for prices. It has come to light that Russia saw a significant boost in December oil exports and piled up as much as $630 billion in foreign currency and gold reserves. In other words, the Russians appear to have premeditated the invasion and are set up for a long-term operation. Therefore, flight to quality interest should remain a hallmark of the gold and silver trade in the coming sessions with the Russian threat providing the gold and silver trade with a "Ukraine put". Therefore, two-sided volatility is likely to become a constant condition in the market with influences like action in the dollar less important than action in crude oil prices. In fact, with crude oil prices overnight up by $6.80, treasury yields falling sharply, and global geopolitical uncertainty widespread gold is likely headed back to the 2020 highs up at $2,117. With surging open interest and higher trading volume so far on the February rally, the bull camp appears to have enough force to lift gold prices significantly in the coming sessions! Similarly, the silver market broke out to the upside and is probably headed to at least $26.00. Near term upside resistance is seen at $25.54, and support is raised to $24.80.
PLATINUM GROUP METALS
In the early going today the palladium market is up $177 an ounce and at times has been up $200 an ounce and that is not surprising considering Russia is the world’s largest exporter of the metal. In recent statistics Russia exported $6.4 billion worth of palladium which amounts to 20.7% of the world’s export flow! The revelation that Russia stored up foreign currency and gold reserves and given news of increased Russian oil exports in December suggest the Russians have planned for a long-term campaign. In our opinion, the extension of the "campaign" is likely to push palladium above $2,900. Keep in mind, that the last COT positioning report showed a level spec and fund long and that should mean the market retains significant buying capacity. While the world platinum market does not have as much reliance on Russian supply as palladium, the market should track along with palladium in the near term. Understandably, platinum has not tracked with palladium over the last 2 years but in the current condition, the threat against supply of palladium extends to platinum and automakers were already shifting their catalytic converter production to cheaper platinum. In the end, the price of cars and vehicles should surge from the increased cost of catalytic converters! Critical support and a pivot point in April platinum is seen at $1,113.40 and we see a trade above $1,150.40 before the end of the week.
PRECIOUS METALS MARKET IDEAS
Just as a cease-fire or sign of negotiation in the Ukraine situation could have hammered gold, palladium, platinum, and silver prices lower, a full-blown invasion by Russian troops has lit the bullish candle in gold, silver, palladium, and platinum prices and the magnitude of the gains ahead could be very significant as Russia looks to be interested in taking the whole country. Targeting in April gold is $2,117, at $26.00 in March silver, at $2,900 in March palladium and at $1,150 in April platinum.
COPPER
We are surprised by the copper market’s initial reaction to the invasion of the Ukraine, as the market recently has been embracing the fear of softening demand and has been discounting the potential for a disruption of copper supply flow from Russia. Obviously, the surge in physical commodity prices provides copper with tailwinds especially with aluminum hitting a record in London and nickel prices recently lifted off the fear of extremely tight supplies. In the near term, the threat against supply in the South America, daily LME copper warehouse stock changes and the health of the Chinese economy are of little interest to copper. While Russian copper exports could be embargoed, initial sanctions and the next wave of sanctions probably won’t contain restrictions on copper flow from Russia unless the United Nations pushes for a complete economic isolation of Russia. Given historical performance the United Nations will do nothing of substance except produce a resolution condemning Russia. In the near term, very little is gained by analysis of internal copper market fundamentals!
COPPER MARKET IDEAS
While it appears that copper is benefiting from the risk off, flight to physical assets wave overnight, we are highly suspicious of a continuation of that action in copper. As mentioned already, we doubt sanctions will impact Russian copper imports initially with officials around the world already proceeding too slowly to alter events in the Ukraine. However, in the event the West surprises by skipping specific sanctions and proceeding to a full economic trade embargo of Russia that could ignite copper to $5.00.