Written Commentary
GOLD & SILVER
All eyes are fixed on today’s US CPI report with the trade ultimately attempting to determine if inflation has peaked. Unfortunately for those hoping for a moderation of inflation the overnight newswires showed hotter than expected inflation in Germany, France, and Spain. In fact, annualized consumer price inflation in Spain is running at a 10% clip while a beleaguered German economy still managed to produce an annualized inflation rate of 7.6%. At this point, we are not sure what factors gold and silver would rally off as bullish sensitivity has been minimal to several supportive developments recently. Several weeks ago, gold and silver would have been lifted by the significant drop in US treasury yields and/or would have been lifted by economic uncertainty thrown off by the most inverted US yield curve in 12 years.
PALLADIUM & PLATINUM
While the PGM markets are likely undermined because of hotter than expected inflation readings overnight, Chinese import and export data showed strong readings and that should provide demand cushion. We see the massive washout in palladium prices as overdue and justified. As indicated in recent coverage, fundamental reasoning behind the June and July rally in palladium was not apparent which could mean the rally was primarily short covering of a near record net spec and fund short. Not surprisingly, the platinum market fell aggressively yesterday in sync with the washout in palladium prices. The case for lower platinum prices is stronger than the case for lower palladium prices as platinum ETF holdings have been falling sharply of late, (overnight holdings fell by 1,438 ounces) and the year-to-date contraction in platinum ETF holdings is now 8.4%.
COPPER
With the copper market massively oversold, the muted bounce this morning in the face of strong Chinese June copper import jump (+15% month over month) highlights a market fearful of recession from the “need” to stamp out inflation with even higher rates. It should be noted that Chinese January through June unwrought and June concentrate copper imports softened. Even though global markets are not overly concerned with reports of widening infections in China, we suspect the copper trade is rushing to factor in that situation.
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