Morning Metals: A Slight Upward Bias Facilitated by More Dollar Declines
GOLD/SILVER
While the dollar has continued sharply lower overnight, gold and silver prices have managed only moderate rallies. While gold and silver managed to extend the recovery off last week's lows in Tuesday's trade, the rallies were carved out on declining open interest and low volume which suggest the rally is built on anemic sentiment. On the other hand, with the dollar falling precipitously this week, sellers of gold and silver are likely buying back those positions which in turn lowers open interest. Fortunately for the bull camp, the bounce off last week's lows is not caused by a single impact, with the Ukrainian tensions adding into the recent gains. While the latest iteration in the Russian versus the rest of the world saga is not as incendiary as troop movements and the movement of blood supplies to the border, seeing President Putin discussing why Hungary is purchasing gas at substantially lower prices and indicating that Hungary will not have price and supply problems next year, suggests to us that Russia is using natural gas as a political weapon. Some are suggesting the Russian President is attempting to block the eastern movement of NATO, while others are suggesting Russia is looking for higher priced long-term commitments for various commodities. In another potential sign of economic aggression, Belarus reportedly rerouted a ship carrying potash from Lithuania to Russia. Perhaps Russia is turning up economic pressure in several commodity markets. Going forward, we see value at $1,783.80 in April gold and see resistance at the 50-day moving average (which also coincides with the middle of the last 6-months trading range) at $1,817.80. We see similar value in March silver at $22.00 and project a rally to the middle of the consolidation up at $23.40.
PLATINUM GROUP METALS
It should be noted that palladium ETF holdings yesterday increased by 7,116 ounces and those holdings have now shifted into a net gain for the year. The PGM markets showed divergence Tuesday with the palladium market significantly overbought from a technical perspective and undermined because of a lack of fresh incendiary developments involving Russia. On the other hand, we saw Russian comments regarding Hungary's capacity to buy lower-priced gas from them as a veiled threat against the West. In short, supply side uncertainty has not disappeared, it has simply moderated temporarily. It should be noted that Norilsk Nickel Global Palladium Fund launched a new financial instrument involving physically backed electric vehicle metals, and that could result in a jump in investment demand for palladium which in turn could artificially tighten supply. In retrospect, last week's palladium rally was forged on increasing volume and rising open interest, while the correction over the last 48 hours of trade has coincided with lower trading volume! The trend remains up, but significant volatility is likely with value not seen until $2,190. The platinum market is generally uninteresting at present as it is an off market with respect to the threat against supply from Russia. Therefore, we see platinum caught in a range bound by $1060 and the 50-day moving average down at $995.
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MARKET IDEAS
With the dollar continuing to fall, we expect gold and silver to grind higher, but in the event the dollar recovers we expect gold and silver to fall quickly back to last week's low. In other words, the bull case is thin at present and the best argument of the bull camp is the proximity to consolidation low support on the gold and silver charts. As indicated already we see value at $1,783.80 in April gold and see resistance at the 50-day moving average (which also coincides with the middle of the last 6-months trading range) at $1,817.80. We see similar value in March silver at $22,00 and project a rally to the middle of the consolidation up at $23.40.