Gold and Silver Set for Gains

GOLD / SILVER

With a fresh downside breakout in the dollar this morning and softer gold prices, the gold trade remains hesitant to buy gold off slumping dollar action. However, given the sharp gains early in the week gold is set for the best weekly gain in months while the silver market is set for the biggest weekly gain since March. In a potential positive, retail demand signal in India a jewelry retailer saw its share price jump 40% in its IPO launch. In retrospect, gold and silver are getting beyond the historical negative price influence of falling inflation and are also nearing the end of the constant pressure of rate hike fear. Unfortunately for the bull camp, the total end of the interest rate hike cycle may be several months off but the perception/anticipation of an end to the cycle is debated after each critical US data point release. However, gold price action yesterday was extremely disappointing to the bull camp in the wake of a massive decline in the dollar and in the face of receding US rate hike fears, therefore the gold market may be running out of short-term buying fuel. In fact, given the sharp run-up in silver prices yesterday, the action in gold yesterday likely signaled a subtle shifting psychology in the metal markets toward classic physical demand hopes and away from financial related influences. Certainly, residual fears of a rate hike by the Fed this month remain in place but confirmation of moderating inflation by the US PPI report after the CPI report earlier in the week expands the likelihood that the Fed will finish its rate hike cycle by the end of this year. Furthermore, this week’s events have inspired noted improvement in global economic sentiment which has helped improve the demand outlook for many physical commodities. In fact, after two significant days of sharp gains, the silver market appears to be showing classic buying interest from improving demand expectations which in turn have improved the structure on the charts greatly. Therefore, both technical and fundamental issues signal the potential for upside follow-through. Fortunately for the bull camp, improving macroeconomic sentiment, a falling dollar and hope for improved physical demand ahead is now capable of cushioning gold against liquidation.

PLATINUM / PALLADIUM

We suspect the platinum market is short-term technically overbought with this week’s low to high rally of $79 but the market should draft residual support this morning from news of an 8,963-ounce inflow to platinum ETF holdings yesterday which pushes the year-to-date gain in holdings to 7.1%. The platinum market surprised with the sharp range up trade yesterday especially with that action following strength in the market on Tuesday. However, improved global economic sentiment from less interest rate hike fears and a noted pickup in animal spirits in global equity markets this week should have fostered buying interest in physical commodities like platinum. In fact, some traders think increased odds the US will avoid recession will in turn help China get its recovery in motion and in turn result in increased demand for platinum. Clearly, the gains in palladium yesterday were undersized relative to platinum and other physical commodities which suggests the palladium market lacks bullish sentiment.

COPPER

While the increase in Chinese copper imports in June relative to May showed a minimal increase, the June readings were the strongest this year even though the June import tally was 12% below year ago levels. Even more surprising is the magnitude of copper strength despite a month over month drop in Chinese copper ore and copper concentrate imports. Obviously, the sharp gains in copper prices yesterday were largely attributable to the hope of a coming end to US interest rate hikes and perhaps from longer-term expectations that a strengthening US economy could assist the Chinese recovery. With the highest trade in copper since the middle of June, the technical signals have shifted in favor of the bull camp and more short covering is expected given the last COT positioning report in copper had a moderately significant net spec and fund short.

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