With the copper market posting a quasi-double high overnight at $4.1850 resistance for today has been posted and the market prepares for a judgment on the direction of near term global macroeconomic psychology. While taking Chinese data releases to heart are fraught with peril, seeing Chinese consumer prices a touch hotter than expected overnight and seeing a larger than expected contraction in producer prices probably favors the bull camp in copper. In retrospect, the explosion in copper prices this week is extremely difficult to embrace especially with an analyst yesterday projecting 1 million Chinese Covid deaths over the last 2 weeks, the deaths are reportedly most heavily among the very old. Some traders think the aggressive range up action is partly the result of Chinese traders securing supply for the upcoming holiday with other buying perhaps the result of buyers with uncovered physical needs fearing even higher prices. On the other hand, the trade continues to embrace a very tight Chinese copper supply condition in both Shanghai warehouses, and in other Chinese industrial storage positions. The market should draft lingering support from news that India is likely to be a net importer for a 5th straight year.
GOLD / SILVER
With February gold into an extremely important CPI report sitting nearly $60 above the January low and recent gains forged on surging volume and open interest, a definitive up trend will probably be tested with a measure of two-sided volatility today. Gold prices were likely held back overnight by disappointing Indian gold demand news after the country reported its 2022 gold imports declined 34% from year ago levels and reported a 79% month over month decline in December imports. Obviously, lingering slowing from Covid, a very weak Indian currency and a global rate hike regime discouraged Indian buyers. However, according to the World Gold Council Indian gold demand is expected to rebound from pent-up demand and because of a recovering Indian economy. While it is extremely difficult and might be a coin flip, predicting today’s US CPI is extremely difficult, especially given the minimal range of expectations. There does appear to be a whisper number calling for a contraction with one economist yesterday predicting a much bigger than expected contraction in consumer prices today. We favor a soft reading given lower price component readings from 2nd and 3rd tier reports over the prior 3 weeks. As we indicated yesterday, seeing gold and silver bulls need signs that inflation is softening is a complete deviation from gold and silver price action through previous inflation periods. Nonetheless, the gold and silver bulls need a positive chain reaction of a soft CPI, which fosters weakness in the dollar, promotes strength in treasury prices which in turn lend support to equities and markets like gold and silver. In conclusion, the fundamental case favors the bull camp while technical indicators are modestly short-term overbought.
PALLADIUM / PLATINUM
With the palladium market unable to rally on positive risk on market days the bull camp probably needs a softer than expected US CPI reading to stir the trade into anything other than a minor rally. While the platinum market has shown definitive resiliency in favor of the bull camp over the last 5 months, prices are high in the recent range and could be facing a major economic signpost report this morning that will impact interest rates and physical commodity market psychology for at least a month. With specific internal fundamental developments this week, the platinum market today will follow other markets and could fall precipitously without definitively upbeat data from CPI. It should be noted that platinum ETF holdings yesterday declined by a very significant 10,630 ounces and are now 0.5% lower year-to-date! However, the trend is up with interest in precious metals also present in gold and silver and therefore platinum prices could breakout to the upside today with a downtick in US CPI.
Interested in more futures markets? Explore our Market Dashboards here.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.