Gold Locked in Bearish Mode

GOLD / SILVER

While bearish control has definitively extended in gold today, the silver market has found value on the charts. Clearly, the gold market is locked into a bearish reactionary mode relative to the dollar as the highest dollar trade since early June overnight has coincided with the lowest gold trade since March 10th. Unfortunately for the bull camp, gold and silver ETF holdings continue to decline, but the overnight outflow of 193,070 ounces of gold is a very large movement signaling gold is becoming “more out-of-favor”. With a fresh downside extension in treasuries pushing yields near 10-month highs, the interest rate impact on gold and silver remains entrenched in the bear case. Increased concern of a hike next month is justified by tone of the US Federal Reserve meeting minutes released yesterday afternoon. However, the Fed members in last month’s meeting were split on the need for more tightening. So far, the prospect of a Chinese financial market contagion has not prompted definitive flight to quality buying of gold or the dollar suggesting it will take a noted deterioration in Chinese conditions to spark flight to quality flows to gold. Furthermore, the World Gold Council is negative toward Chinese gold jewelry consumption in the 2nd half of this year, but some of that disappointment could be offset by WGC expectations of ongoing central bank gold buying. In retrospect, the gold and silver bulls were fortunate that favorable US scheduled data yesterday but an upside breakout in US treasury yields this morning, is magnified by a new high in the dollar which should add downside momentum.

PLATINUM / PALLADIUM

While the October platinum contract has not forged a lower low today and appears to be building consolidation just above this week’s low, the bear camp should be emboldened by another outflow from platinum ETF holdings yesterday by hawkish take away headlines from the Fed following yesterday’s release of meeting minutes, from higher dollar action and from even higher interest rates. Furthermore, with the World Gold Council projecting weak Chinese gold jewelry consumption, the platinum market should also fear soft Chinese platinum jewelry demand. Given ongoing fear of significant slowing in China, the overnight liquidity injection by the Chinese central bank is discounted and the bear camp in platinum remains confident.

COPPER

While the magnitude of the inflow to LME copper warehouse stocks overnight was not significant, the drumbeat of higher supply remains in place with eight straight days of inflows and 22 inflows out of the last 25 days! Even a glimmer of demand hope from a fresh Chinese central bank liquidity injection has not prompted speculative buying interest this morning. Not surprisingly, fear of the US Fed raising rates next month notched up yesterday despite overall sentiment still expecting the Fed to hold steady in September. While a year-over-year jump in July Chinese refined copper output could be spun into a negative by the threat of lower refined copper imports ahead, the Chinese saw increased refinery output of copper, lead, zinc, and iron ore last month potentially signaling a rise in industrial activity ahead. In a very minor supportive supply development, an India copper company saw lower production and lower quarterly profits yesterday. In the end, without a definitive reversal of negative global economic sentiment, copper prices look to continue to slide toward the late May lows!

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