Gold Short-Term Overbought

GOLD / SILVER

With the Wednesday and Thursday trade in August gold producing wide ranges and ultimately producing a 180 degree sentiment change, support just above $1950 is given added respect. However, gold appears short-term overbought from the surprise bounce yesterday which was largely attributable to the sharp decline in the dollar and because of softer than expected US jobs data. Even though surveys earlier in the week showed only a 1 in 3 chance the US Fed would hike rates next week, yesterday’s 18 month high in US initial claims provided gold with a significant wave of buying which reached $30 per ounce from the low. The gold market is clearly not sensitive to flight to quality issues as news the US will begin nuclear talks with Iran again could have undermined gold. The bull camp does have a problem with gold ETF holdings showing outflows for eight straight sessions. While silver ETF holdings broke a 6-day pattern of outflows from ETF holdings on Wednesday, holdings yesterday fell again resulting in a year-to-date contraction in holdings of 0.3%. However, the charts this week in silver show a market in a much stronger technical condition than gold. In fact, the upside extension in silver to the highest level since May 11th yesterday and another new high this morning extends a definitive pattern of higher highs and higher lows.

PLATINUM / PALLADIUM

In retrospect, platinum prices yesterday saw no support from stronger Chinese auto sales readings, a downside breakout in the dollar, very strong gains in gold and silver and failed to benefit from a reduction in US rate hike threats. Therefore, it is not surprising the market remains pinned down to yesterday’s lows this morning without credible support until the recent double low down at $997. In retrospect, the platinum market’s inability to sustain the breakout above $1050 earlier this week and the ensuing pattern of lower lows leaves classic technical signals pointing down. Apparently, sentiment toward platinum futures is less enthusiastic than toward platinum ETF holdings which saw an inflow of 2,408 ounces yesterday resulting in a year-to-date gain in holdings of 9.4%. In today’s action, the lack of specifics of a Chinese stimulus package and bearish charts set the stage for a retest of the double low down at $997.40. The palladium market also failed to benefit from the strong gains in gold and silver yesterday and was also likely disappointed with the lack of clarity on a Chinese central government stimulus package.

COPPER

With the copper charts clearly extending a pattern of uniform higher highs and higher lows this week and given the new high for the move, the bull camp retains control of the market into the last trading session of the week. The bull camp should see supply side support with LME copper stocks declining 1800 tons overnight and Shanghai copper warehouse stocks falling 10,175 tons (-11.7%). As indicated already, the charts in July copper are very constructive with a very clear pattern of higher lows and higher highs unfolding since the spike low on May 25th. Certainly, news of an improvement in Chinese auto sales, a weaker dollar and further reduction of US rate hike fear justified yesterday’s sharp reversal and the highest close since May 10th. Some traders suggest the slide in the dollar will continue to be a very powerful development for gold and silver with another portion of the trade banking on lift from a Chinese stimulus package.

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