GOLD / SILVER
Technical and fundamentals continue to diverge between gold and silver, with silver shifting bullish and gold shifting bearish. In fact, overnight February gold failed at close in support and reached the lowest level since November 10th while December silver continued to respect and build consolidation support around the $21.00 level. Obviously, silver continues to draft off the very bullish deficit forecast from the Silver Institute from earlier in the week and gold remains hostage to the fear of higher interest rates. With the New Zealand central bank raising interest rates by 75-basis points last night and the US Fed releasing its meeting minutes later today the gold market is facing the potential for fresh knock-on selling. However, the US economic report slate today is full of reports normally scheduled for Thursday and brought forward because of the holiday. The most critical readings today are initial claims (which are expected to increase slightly) and durable goods which are expected to repeat last month’s gain of 0.4%. Even more divergence between the 2 markets was evident in daily ETF flows reports yesterday with gold holdings declining by 27,195 ounces and silver ETF holdings increasing by a very significant 4.9 million ounces! The increase in silver holdings was the largest increase since September 19th. While we expect tight trading ranges until the release of the US FOMC meeting minutes later today, modest dovish dialogue in that release could save and then launch gold above the $1,775 level, but we think the most likely outcome is evidence of broad support for even higher ultimate US rate target levels. On one hand, the silver market flared sharply higher yesterday and at times reached $0.78 above its Monday low, but the trade was unable to hold the probe higher and ultimately fell back to psychological support of $21.00. Key pivot point support in December silver today is seen at $20.785, while a trade back above yesterday’s high of $21.37 could spark gains to $22.00 from short covering.
PALLADIUM / PLATINUM
In our opinion, the palladium market was fortunate to hold support yesterday and again overnight. Certainly, improved demand hope from auto catalyst construction serves as an underpin for prices but seeing daily Chinese infections approach 30,000 and seeing constant widening of activity restrictions in China tempers demand for nearly all physical commodities. Fortunately for the bull camp in palladium the market sits within relative proximity to key consolidation lows and the speculators were net short 1,236 contracts in the COT report as of Tuesday last week. Therefore, the bias is down but the pace of declines might be measured with initial support at $1,845 a potential value zone unless there is a big picture macroeconomic meltdown today. Platinum on the other hand is fundamentally underpinned following the World Platinum Investment Council forecast of a 2023 deficit of 303,000 ounces. According to the World Platinum Investment Council, mine production of platinum will remain restricted at the same time auto catalyst demand recovers. In fact, the World Platinum Investment Council expects auto catalyst demand to more than offset continued liquidation by investors. However, in the near term surging Chinese infections undermine forward industrial demand prospects. Given the definitive rejection of the $975 level and respect of key uptrend channel support from the October and November lows this week, platinum looks to diverge positively versus palladium. However, the bull camp will need clear “risk on” conditions and a weaker US dollar to forge noted gains in holiday thinned trading.
With headlines overnight pegging daily Chinese infections near 30,000, we expected to see copper ranging down below $3.60 in the early trade today. However, the market is drafting longer-term support from Goldman suggestions that a reopening of China “next year” will add 0.5% to its copper demand forecast. In the near term, news that China will support its real estate developers and construction firms helps to dampen copper demand fears arising from the Covid situation. Furthermore, the market continues to draft support from chatter regarding the “tight global supply situation” especially with the Asian Copper Week conference producing a wave of analyst and Company executive tight supply forecasts. Despite a minimal decline in LME copper warehouse stocks this morning copper stocks have risen in 5 of the last 8 sessions and have reached a 3-week high. While Chinese news is usually the main driving force for copper prices, the copper trade will temporarily focus on US durable goods readings and then on the general tone of the minutes from the last US Federal Reserve meeting. Nonetheless, seeing definitively dovish dialogue from the US FOMC meeting minutes release could hit the dollar hard and provide copper with fresh short covering buying.
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