Industrial Metals Surge as Budget Deal Announced
?? Fundamentals
Industrial metals were among the best performers as the New Year begun, with many traders taking comfort in the U.S., avoiding the so called “Fiscal Cliff”. Strong data on the U.S. manufacturing sector also supported the metals complex, such as the ISM Manufacturing Index rising above 50, with a 50.7 reading in December, vs. 49.5 in November. However, any major price advances from current price levels may be more challenging.
First, though income tax rates for most Americans will not increase, the temporary 2% cut in the employee portion of the payrolls tax was allowed to expire, which is the equivalent of a 2% tax hike on wage earners. This may pose a drag on the economy in the short-term, with some economists looking for much slower GDP growth in the first quarter of 2013 — possibly as low as 1%, vs, the end of 2012. Industrial precious metals also posted sharp losses to end the year, with Silver prices down 13% in the 4th quarter of 2012 alone. So any price gains may just be a recovery from vastly oversold price levels.
Large speculators were busy liquidating long positions in the industrial metals to end the year, with the most recent Commitment of Traders report showing a net-decline of over 19,000 contracts combined in Copper, Silver, Platinum, and Palladium. Copper and Palladium prices have held up the best of the four metals mentioned, with Silver and Platinum lagging sharply behind. So unless we continue to see improving economic data in the near-term, it may be difficult to draw back large speculators into the market, unless there are some technical signals that a bottom for prices is now in place.
?? Technical Notes
Looking at the daily chart for March Silver, we notice prices breaking out to the upside after a six-session long consolidation period following a steep sell-off in mid-to-late December. Prices have briefly moved above the 200-day moving average (“MA”), though Wednesday’s sharp rally was stymied at the 20-day MA.
The 14-day RSI has rebounded modestly off oversold levels, with a current reading of 41.92. The December 20th low of 29.635 looks to be strong support for March Silver, with resistance seen at the 20-day MA, currently near the 31.550 price level.
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