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Exciting Time to be Australian

19 March 2021

Precious Metals Commentary

 
Gold staged that recovery that we talked about last Friday but didn’t quite make it as far as the US$1760 mark – yet. The price sailed close to the expected upside resistance at US$%1760 before strong US data intervened and the price rolled back slightly. The key support is clearly the US$16370-1690 band.
The reality is that bonds are in a bearish phase and although the Fed is trying hard to manage expectations around the pace – or lack of – monetary tightening, the bond market is quick to respond to positive news from the real economy, as data from the Empire State and Philly Fed Manufacturing indexes provided evidence of a growing economic recovery. Examples of weaker-than-expected data, such as this week’s core US Retails Sales, reflected tremendous strength in January, bad weather in February, and of course there are the US$1400 stimulus cheques in the post that will impact soon. Indeed, data from Bank of America’s analysts shows that card spending in the week that ended March 6th jumped by a thumping 10.70 % year-on-year.
All in all, bonds will continue to be vulnerable to further selling pressure. Look out for comments by Fed Chair Jerome Powell on Monday the 22nd at an event hosted by the BIS.
Last week’s message was that rates remain anchored near or at the zero bound, asset purchases remain on track and that there is plenty to do before tightening. That helped gold of course. It is unlikely that the Fed message will change substantively.
The other data to look out for next week is the Core PCE price index on Friday the 26th, as this the important inflation index for the Fed, and the Revised UMich Consumer Sentiment and Inflation Expectations index, previously 3.10 %.
Positioning
Gold saw significant outflows of 1.038 million FTozs in the CME Managed Money sector in the week ending the 9th  of March. Total liquidation since the 23rd of February amounts to almost 2.90 million FTozs. CME Managed Money shorts added 0.615 million FTozs in the week ending Tuesday the 9th of March, taking total shorts to 6.679 million FTozs.
Since that period, open interest has increased to 479,726 lots, an increase of 585,500 FTozs, which strongly suggests an influx of new longs into the market, most likely the small change in open interest reflects a reduction in short positions over the same time span.
Prices and key support
Key support at US$1670-1690. Interim support at US$1723.
 
 
 
 
Silver
The price has staged a weak recovery. The spot price is trading around the rising weekly trend line, but is struggling with the US$26.70 level. US$25.80 is currently providing some support. There is a risk of a move back to US$23.
The short-dated silver forwards have moved back into in the past fortnight, most likely reflecting a reduction in the amount of metal banks are looking to borrow to finance exports from China, in itself a reflection of lower prices available in overseas markets. 
 
Positioning
Silver Managed Money longs sold about 15.50 million in the week ending Tuesday the 9th of March. Shorts added an almost negligible 0.5 million.
Since the 9th of March Open interest has increased by just over 5,000 lots, or 25 million Tozs, which suggests an increase in length, although price action has not been that conclusive.
Silver ETFs declined to 935.94 million by the 18th of March, a decline of almost 3 million Tozs since Friday the 12th, and a reduction of just over 28 million Tozs since the end of February. To put that into context, silver ETF holdings have declined 106.47 million Tozs from peak ‘Redittor’ (or 3,311 metric tonnes) at the very beginning of February. There are some very happy investors out there who offloaded 25 million Tozs of silver on the early Feb price spike.
 
The Australian Dollar
The AUD had a powerful boost from the February Employment data, dropping to 5.80 %, a number which took Australian jobs back to pre-pandemic levels. A combination of strong fiscal and monetary stimulus plus optimism surrounding vaccinations boosted employment with an increase in employment in February of 88,700, compared with expectations of around 30,000 jobs.
This helped spike the Aussie to weekly highs, however the currency fell very swiftly afterwards. Strong data from the US forced yields higher still, with 10 year US bond yields touching 1.7526 %. The principal driver for that came from a strong number on the Philadelphia Fed Manufacturing Index. The index printed 51.80 compared with expectations of 22.50. Tension around Sino-US talks did not help the AUD either.
As well as better yields overseas, Australian Retail sales data was weak, printing -1.10 % Month on Month, compared with expectations of a positive rise of 0.40 %, and this helped weaken the Australian Dollar.
Technically, the AUD has rejected the 2018 high and failed to close above the Weekly Turning line for 5 weeks in a row. Support comes in at 0.76 and 0.75.

GOLD Weekly
Gold rallied close to the expected resistance level at US$1760 and then weakened.



SILVER Weekly