Downward Tilt in Gold and Silver

GOLD / SILVER

The gold and silver markets look to finish the week with a downward tilt following US data displaying a stronger than expected US economy. Unfortunately for the bull camp, the passing of the latest US and European rate hikes failed to provide a relief/pause in the headwinds from monetary policy tightening. Adding to the negative tilt this morning is news that both gold and silver ETF holdings saw single day outflows of 0.1% yesterday with the outflow from gold the 4th straight day of outflow. However, as indicated earlier this week, the gold market was primarily supported by a single force of a weaker dollar and with much better-than-expected US data on Thursday, the dollar has rebounded impressively and is likely capable of forging further gains. In fact, yesterday’s US initial claims were the lowest since the middle of February, ongoing claims were the lowest since January and GDP was definitively stronger than expected and that could be the beginning of daily speculation of a US rate hike in September. Furthermore, a pulse up in US interest rates combined with higher rates in the Euro zone could pull capital away from gold and silver, especially with the Fed raising Fed funds rates to the highest level in 22 years.

PLATINUM / PALLADIUM

While the platinum market has not extended yesterday’s sharp range down failure with a new low for the move early today prices hover just above yesterday’s lows without solid support until $937. Fortunately for the bull camp, platinum ETF holdings yesterday broke a trend of daily outflows with a minimal inflow of 1689 ounces leaving year-to-date gains in holdings of 5.6%. In retrospect, the platinum market failed to benefit from evidence of lost production/supply from earlier in the week and more importantly prices fell yesterday in the face of a strong global risk on environment. Certainly, seeing interest rates jump and have the capacity to jump even further reduces the prospects of auto sales as auto loan rates make purchasing a vehicle more expensive. While the large wash in platinum prices this week certainly pulls down the net spec and fund long, we do not see platinum forging a bottom without a surprise headline. While the palladium market damaged its charts yesterday, the market will likely produce another record spec and fund position after the close today thereby reducing stop loss selling fuel and in turn limiting outright speculative position selling.

COPPER

While the copper market showed some initial sensitivity to the broad-based risk on vibe flowing from strong equity market gains yesterday and to a lesser degree from better-than-expected US data, the trade ultimately rejected the rally and that in turn leaves the bias for today to the downside. However, sentiment in China improved slightly overnight and was confirmed by very significant gains in the Shanghai equity markets. Apparently, China’s top housing official indicated buyers who had paid off previous mortgages would be considered first time purchasers which offers them more favorable borrowing terms. Like gold, the copper market suffered from downward revisions in copper price forecasts and a lack of confidence in the Chinese economy. In retrospect, despite the markets dramatically reducing their expectations of a US recession this week, copper prices have not been able to benefit from that favorable shift in sentiment. Therefore, for the bull camp to gain control requires ongoing strength in Chinese equity markets and additional stimulus programs.

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