GOLD / SILVER
Gold and silver prices this morning appear to have drifted higher with outside markets in early action and that would seem to indicate the trade thinks US CPI today will not be “hot”. While the gold market has not traded off classic supply (production) developments, news that South African September gold output was revised even lower and news that South African October gold output reportedly declined by 6.3% versus year ago levels should provide some cushion for gold against today’s data volatility. Certainly, gold and silver saw some long profit-taking/position squaring ahead of critical US inflation data today. Going forward, chatter in the market last week that gold and silver bulls will need a definitive downside breakout in the dollar holds true today, but it is possible precious metal markets will gyrate wildly today before deciding on a trend direction after the Fed meeting on Wednesday. The aggressive shift away from the bull track has been so significant that gold mining shares came under pressure yesterday. Even though the markets expect the US Fed to begin their “pivot” on Wednesday, and that should support gold and silver, the central bank will be raising interest rates again and that has given pause to some precious metal longs. Contrary to historical gold market action, gold is likely to fall aggressively today if US CPI is judged to be hotter than expected. In our opinion, to see the gold market recover prior to the Fed decision on Wednesday probably requires a trade in the dollar index below 104.00.
PALLADIUM / PLATINUM
The reversal in the palladium prices from last week’s recovery is not surprising as the bull camp had little internal market justification for the rally. Certainly, palladium saw some lift from the strength in platinum prices but the slightly negative shift in views toward China following the relaxation of Covid rules clearly ignites PGM demand concerns again. In our opinion, the platinum market is significantly more vulnerable to liquidation than the palladium market. In addition to a significant net spec and fund long positioning, platinum prices sit $200 an ounce above the 2022 lows into extremely critical junctions of Tuesday’s CPI and Wednesday’s Fed decision. From a technical perspective the platinum market damaged its charts last week with a failure to hold uptrend channel support and a pattern of lower highs has extended.
In a surprising shift in market psychology, the lessening of activity restrictions in China has resulted in fear of a serious Chinese infection surge instead of surge in economic activity. However, overnight copper reportedly traded higher off surprising strength in the Chinese property sector fostered by supportive measures from the government and a surprising increase in weekly new-home sales. Certainly, copper supply inside China is extremely tight, but that bullish force is severely deflated if demand reduces the rate of consumption of inventories. While the bull camp was emboldened by expectations of a less significant December rate hike with the $0.38 rally off the November lows, the Fed is still likely to raise interest rates by a historically large 50-basis points Wednesday. Make no mistake about it, the US CPI report is likely to set the tone in treasury and currency markets for the rest of the year and that action will surely impact copper prices. From a longer-term perspective, copper should derive minimal support from predictions that copper supply “growth” next year will be less than expected. While the pace of outflows from LME copper warehouse stocks has not changed, the daily exit of supply is material.
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