GOLD / SILVER
The charts favor the bear camp in gold and silver to start the new trading week. While a portion of the bull camp is hopeful of flight to quality buying interest following debt ceiling negotiations at the White House today, we think the markets are at risk of faltering from fears of recession if talks break down. With the dollar early today drifting below last Friday’s low, the bull camp in gold is hopeful the May rally is losing momentum. With the trade generally remaining positive about US debt ceiling negotiations, it is possible that optimism will spill over into this week thereby allowing gold and silver to consolidate above last week’s low. Unfortunately for the bull camp, Indian buyers remain extremely price-sensitive especially with the Indian currency vulnerable to further US dollar strength. Unfortunately for the bull camp, the latest COT positioning report (which is probably overstated) showed a net spec and fund long reading near 12-month highs leaving the market vulnerable to stop loss selling from signs of an impending US debt ceiling deal. On the other hand, with recent financial market relationships out of sync it is possible gold could shift its focus from the dollar to the direction of US interest rates.
PLATINUM / PALLADIUM
As opposed to gold and silver, the platinum market last Friday managed to respect the $1055 level to form a double low which becomes a bull/bear line early this week. While the physical demand outlook for platinum could improve with a US debt ceiling deal, Chinese data continues to be lackluster which has discouraged would be buyers since the April highs. On the other hand, platinum ETF holdings remain 9.6% higher year-to-date with a net positive annualized impact on demand of roughly 300,000 ounces. In our opinion, if the bull case in platinum remains in place and inflows to platinum ETF holdings continue, we expect buyers to return once the debt ceiling impasse is in the rearview mirror. Unfortunately for the bull camp, the net spec and fund long in silver is overbought relative to the last 12-months even though the latest reading probably overstates the position following the slide after the report was measured. With the market anticipating palladium to continue to lose demand to platinum we expect the price premium of palladium over platinum to narrow. However, investors remain interested in palladium ETF holdings with the year-to-date gain in holdings the largest of the actively traded precious metal ETF contracts at +14%. From a technical perspective, the palladium market has seen technical balancing with the market continuing to hold a moderately significant net spec and fund short. It should also be noted that platinum broke after the positioning report was measured and it should be noted that the reversal and recovery last week was forged on one of the highest trading volume days of the past 30 days.
In retrospect, the copper market remains caught in a sideways consolidation range bound by $2.7790 and $3.6570. If it were not for lackluster Chinese economic data, we would see the current consolidation lows as value. However, the bull camp should also be emboldened by a large net spec and fund short in copper which in the latest report was the largest net short since March 2020! In other words, the copper futures have factored in a bearish environment with the downside extension in May. Unfortunately for the bull camp daily LME copper warehouse stocks have increased for twenty straight trading sessions, but that bearish supply factor is fully countervailed by typically more important declines in weekly Shanghai copper warehouse stocks for the last 3 months.
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