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COMMODITY REVIEW AND OUTLOOK
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(October 10, 1997) METALS: COPPER–SHORT TERM–A decline in LME warehouse stocks sparked a minor short-covering rally. Funds are also reportedly buying, which is probably short-covering. Warehouse stocks on COMEX and the LME are at their highest level since January of 1996. Just to put some perspective on this, I'd like to point out that copper prices then were around 120. Demand is important. U.S. demand remains strong, Asian demand is dormant. Without Asia returning to the table, it may be difficult for copper to overcome bearish supply fundamentals.
RESISTANCE–Resistance lies near 9550, 9600-9620, 9775, 9885-9940, 100.40, 100.90, 102.25 and 104.50.
SUPPORT–Support basis December lies near 9440-9450, 9330-9350, 9150-9200, approximately 9000, the upper 8800's and near 8800.
RECOMMENDATION–Sell December copper on rallies to the 9700-9800 area with stops over 9980, or 100-200 points. Option traders should stay on the sidelines.
GOLD–SHORT TERM–Bears pressed the gold market after the BUBA's raising rates failed to spark a meaningful response and the dollar firmed. Central bank selling was also a concern for the market. Without clear signs of an inflationary crisis or increased inflation, international investment capital will continue to shun gold. U.S. bonds are guaranteed, the stocks market has been out-performing nearly every other investment, and even savings accounts pay interest. Gold, on the other hand, just lays there. Consider buying a few ounces for door stops or paperweights. Otherwise, leave it alone for now.
RESISTANCE–Resistance basis December lies at 338-340, 343..
SUPPORT–Support basis December 334-335, 329, 326-327, 321-323 and 318.50.
RECOMMENDATION–The selloff below 330 basis December does not bode well for the gold market. Sell rallies to the 332-335 area with stops over 33 or of 2-3 dollars. Look for the low 320's. Option traders should stay on the sidelines for now. Longer term, gold may have a move of substance, but it does not appear to be on the horizon right now.
SILVER–SHORT TERM–Overall action has been sloppy. A 12-year low in warehouse stocks sounds bullish, but demand needs to pick up to sustain a move higher. Demand has apparently declined on the rally. Still, I suspect that the funds have been mostly long silver, not short as with gold and copper, so this trade could still have modest upside. Low Comex stocks and increased prices could bring the sellers of physicals out of hiding. I also suspect that demand will disappear once prices have improved.
RESISTANCE–Resistance basis December lies near 527, 535-540, 551.
SUPPORT–Support basis December lies near 514-517, 505, 498, 490-493, 485- 486.
RECOMMENDATION–Aggressive traders might buy December silver near 512-515 if aggressive, and/or sell a rally to the upper 520's, lower 530's with stops of 5-10 cents. If you remain a long- term bull, consider buying December calls on pullbacks.
M. Steven Morgan
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