Bear Forces Abound For Metals

GOLD / SILVER

The precious metals complex is under attack following signs that the US Federal Reserve may not be as “patient” as they have been indicating for over a year. However, the Fed Chairman also indicated inflation could be persistent and given Chinese threats to push commodity prices downward, there is a unique combination of inflation “fear” and commodity deflation fear in the mix today. In retrospect, gold and silver were already in a bad position for the bull camp, as hawkish dialogue from the Fed would have thrown prices significantly lower, whereas a carefully balanced commentary from the Federal Reserve might not have lifted prices.

PLATINUM

The long and short of the PGM markets favors the bear camp with deflation of industrial material prices underway primarily because of the Chinese dumping of strategic holdings but also because of the slight hawkish tilt from the US Federal Reserve yesterday. In fact, we think yesterday’s strength in palladium was largely the result of long palladium and short platinum spread trades and not because of renewed hope for improved Chinese auto catalyst demand.

COPPER

At least in the near term, the Chinese plan to deflate prices (by crushing speculative buying) looks to be successful. In fact, a-number-of markets like copper have already seen enough damage to temporarily “break the back of the commodity bull camp”. Even more insidious is the potential for China to utilize its massive strategic commodity holdings on an ongoing basis, as that in turn should push a large portion of the bull camp in copper to the sidelines.