Downside Pressure Expected to Extend

GOLD / SILVER

With a definitive upside breakout extension in the dollar to the highest levels since March 27th this morning, the downside pressure in gold and silver is expected to extend today. Strength in the dollar is likely the result of emerging hawkish views toward the US Federal Reserve stance in the June 13/14th FOMC meeting. While reports of progress on the debt ceiling negotiations lowers the prospect of default, until an actual deal is inked traders should fear a breakdown in talks and a last-minute drama of some sort. Adding into the negative vibe in gold and silver today are outflows from gold and silver ETF holdings yesterday of 13,149 ounces and 512,657 ounces respectively. Unfortunately for the bull camp, precious metal markets yesterday were behaving like flight to quality instruments as expectations in the market shifted slightly toward a “debt ceiling deal” and prices caved in. Even the charts favor the bear camp today, especially in silver with a fresh new low for the move and signs of heavy resistance building at the $24.00 level.

PLATINUM / PALLADIUM

While the July platinum contract appears to have built a thin measure of consolidation support at a recent double low of $1058, fear of a very slow climb out in the Chinese economy, tightening global credit conditions, strength in the dollar, and weakness in gold and silver present a measure of ongoing fundamental resistance for the market. However, yesterday platinum ETF holdings saw another noted inflow of 10,773 ounces which puts year-to-date gains at 9.6%. Therefore, investors remain keen to build holdings in platinum orientated instruments which are in part justified by predictions of a significant jump in the annual supply and demand deficit. According to Johnson Matthey surging automaker demand is expected to grow consumption of platinum by 11% and when increased investor demand is added total global demand for platinum is expected to increase by 19% and reach 7.46 million ounces. Johnson Matthey also predicted the 2023 world platinum market would see a deficit of 128,000 ounces. Unfortunately for the bull camp in palladium Johnson Matthey expects palladium consumption by automakers will drop by 2% thereby reducing the world palladium deficit to 43,000 ounces which is less than 1/10th the deficit of 531,000 ounces last year. In conclusion, forecasts project platinum to gain significant market share over higher priced palladium, especially with palladium currently trading $430 per ounce above platinum.

COPPER

The outlook for the Chinese economy continues to chop back and forth with the latest volley slightly disappointing following a contraction of 0.2% in a Chinese house price index reading for April. In retrospect, the copper market was also disappointed with the soft Chinese economic data from industrial production and retail sales yesterday leaving Chinese copper demand views in favor of the bear camp. Unfortunately for the bull camp, LME copper warehouse stocks continue to rise with a gain of 2,800 tons overnight extending a rapid rebuilding of exchange supply. The bull camp could be cheered by the fact that this week’s sharp declines have resulted in a significant decline in trading activity, perhaps signaling a lack of interest in pressing the short side of the market at current deflated levels. In minor macro negative for copper increased recession fears have invaded several physical commodities this week from headwinds arising from the prospects of a US default. While we expect a deal to surface, we do not expect a deal until the US is facing imminent default and that gives the bear camp the near-term edge.

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