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Mini-Metal Monitor: Are Gold and Silver Making a Comeback Today?


...the action in global long-bond yields will be key.

Are Gold and Silver making a comeback today?

Crude Oil is higher by more than a buck, the Yen is on the run, Zinc is recovering sharply and the U.S. Bond market is rallying vociferously.

Hence, for this week, a downside break in the Goldman Sachs Commodity Index has been averted, or postponed.

Unfortunately, unless the market is suddenly suggesting that global central banks will not push rate hikes beyond what is priced into deposit rate strips in Europe and Japan and that Canadian, New Zealand, Swiss, Japanese, European, and U.S. 10-Year Bond yields will not breakout to the upside in violation of a multi-decade downtrend.

Then the technical set-up exhibited in the longer-term weekly chart of the GSCI will result in a breakdown and downside trend violation in the commodities sector, as defined by the energy-weighted index.

And, while Gold and Silver are decidedly higher this morning, we cannot help but notice a 'counter-trend' message emanating from the inter-market dynamic involving Crude Oil, Copper, and Gold.

Note the upside breakout in the price of Gold, relative to Crude Oil.

Hence, we will be keen to monitor the action in the Gold-Copper Ratio spread, shown below, since an upside breakout would likely coincide with a downside crack in the commodities arena, led by the industrial sector.

Either that or the Fed really is close to finished, the ECB will not take too many more steps, and the BOJ will not get to the point where they actually raise interest rates.

Gold will shine from a monetary perspective, not so much on a currency by currency basis, but relative to the entire commodities sector.

In this circumstance, the action in global long-bond yields will be key.

An upside breakout in the Swiss 10-Year Bond yield above 3.25% or a breakdown in the price of the 10-Year Japanese Government Bond below the 133.25 level, not to mention any move in the U.S. 10-Year Note yield above 4.90%, would signal that commodities are at risk because of intensified global central bank hawkishness.

In that case, the GSCI will violate its uptrend, and Gold is at risk of a deeper downside correction.

Hence, our stance remains med-term neutral, amid long-term bullishness, with fear that the risk of a downside purge continues to increase, as defined by intensified hawkishness on display in European and Japanese fixed-income markets.

Editor's Note: This letter is an excerpt of "The Metal Monitor", and has been reproduced with the full authorization of its publisher. For information about subscribing to macro-market research services, including "The Metal Monitor", e-mail:
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