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Gold Forges 3-Day High


Not surprisingly, with the dollar posting a 4-day low overnight, the gold market has managed to extend the reversal and has forged a 3 day high in the early trade today. Adding to the slight improvement in outside market conditions is a slight dip in treasury yields, which have been applying significant pressure to gold especially with treasury yields yesterday reaching the highest levels in 16 years. Traders should expect little reaction in gold to US scheduled data today and instead expect an avalanche of Fed speeches from Jackson Hole to provide the beginning of a narrative for the Fed’s September policy decision. It should be noted that the CME Fed watch tool probability of a pause in next month’s meeting has declined by 4% overnight and is likely to decline further after a series of Fed speeches. However, traders should not rule out the potential for a sprinkling of dovish dialogue from various doves at the Fed, but the most important speech will obviously be the Fed chairman speech on Friday at 9:05 AM Central time. Not surprisingly, gold ETF holdings saw a 7th straight daily outflow of 45,476 ounces yesterday which pushes year-to-date liquidations near 4%. It should also be noted that silver ETF holdings declined by 1.1 million ounces yesterday and are approaching a net outflow this year of 3%. We see the initial gains in gold and silver prices this week as misguided, temporary and/or overstated reactions to a smaller than expected Chinese rate cut and from a limited and unlikely sustainable setback in the US dollar. In our opinion, the bull camp should expect gold prices to remain under pressure in hopes of notably cheaper gold prices will spur a jump in Indian demand later this year.


While the platinum market is showing signs of trending higher, the market has returned to a critical pivot point and appears to be rising without any visible means of fundamental support. In fact, Swiss platinum exports in July declined 44% (Switzerland is a major trade hub, refiner, clearinghouse) for the global platinum trade). At the risk of sounding redundant, troubles in China combined with surging global interest rates are bearish issues which further reduce the potential for sustained rallies in platinum. Looking back, action in the platinum market is heavily dependent upon a healthy Chinese economy and at present it is unwise to expect Chinese demand to improve anytime soon. Not surprisingly, the palladium market sits in the same negative demand environment as platinum with the bear case toward palladium threatened because a historical bearish view by speculators as evidenced by the near record spec and fund short in place over the last 4 months.


It appears that several industrial metals are showing strength today off chatter of better Chinese demand ahead (following optimistic views from mining companies) with copper strength also rooted in the extreme tightness of copper inventories inside China. Apparently, copper industry players are cautiously optimistic the Chinese economy will eventually respond to the ever-expanding list of Chinese stimulus efforts. It should be noted that BHP remains bullish toward Chinese copper demand prospects despite cutting their forecast of Chinese growth to 5.5%/5% from 5.75%/6.25% previously. In short, the 10-basis point interest rate reduction by China yesterday was disappointing to the copper trade but there is hope among big players that the accumulation of stimulus will eventually spark the Chinese economy. Certainly, a lengthening string of inflows to LME copper warehouse stocks is negative for copper prices but seeing Shanghai copper warehouse stocks holding less than 3 days of Chinese consumption keeps the subject of extreme tightness inside China alive.


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Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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