GOLD / SILVER
In addition to very impressive rallies yesterday, gold and silver have extended sharply this morning for an exceptional two day start to 2023. While not a major influence seeing German import prices, Swiss consumer prices, and French consumer prices decline in today’s scheduled data should indirectly provide lift for gold and silver prices as signs of inflation coming under control could result in less global central bank tightening and that in turn should apply pressure to the dollar. With the markets presented with the beginning of the monthly job report cycle this morning, recent gains are likely to be tested but extending strength through the coming three sessions could mean 2023 will be a good year for precious metals. In retrospect, gold and silver were initially unable to discount the significant rally in the dollar, but initially sustained strength in the dollar prompted a wave of long liquidation in the precious metal complex. While it is possible that a noted initial drop in US treasury yields in the first two sessions of 2023 is providing a bullish focus for gold and silver, the IMF 2023 forecast of inflation and recession certainly undermines many physical commodities at the beginning of this year. On the other hand, with the initial rally in gold to start 2023, prices reached the highest level since June 27th while silver prices reached the highest level since April 22nd, and that action could be a precursor to a higher fund allotment for gold and silver this year. However, given the release of the December Fed FOMC meeting minutes later today and given the recent strength in gold and silver, seeing the Fed remaining focused on inflation at the end of last year would not be a good thing for gold and silver longs.
PALLADIUM / PLATINUM
Given the extreme divergence between palladium and platinum prices yesterday it appears that 2023 will bring about the long-awaited substitution of expensive palladium favor of cheaper platinum? With negative macroeconomic sentiment flowing from early 2023 recession forecasts and growing uncertainty toward the Chinese Covid situation, physical commodities like palladium are vulnerable to demand destruction selling. Given the general weakness in physical commodity markets, the higher dollar and noted declines in palladium, the significant upside extension in platinum was very surprising. However, the trade thinks 2023 will be a year in which industrial and jewelry demand will improve with the industrial demand for platinum improved by substitution of significantly more expensive palladium with platinum.
Obviously, the copper market has started to factor in a decline in Chinese copper consumption because of the infection explosion and demand could be further depressed later this month when the Chinese New Year holiday begins on January 22nd. However, reports overnight noted increased Chinese buying which some analysts think is preparation for their holiday at the end of the month. It should be noted that some Chinese see activity returning toward normal despite the infection flare which might suggest the ratio of infections versus serious illness is low enough to keep economic anxiety in check. Apparently, the bull camp continues to “hope” for a Chinese stimulus package, but a surprise stimulus package might be announced as an offset to Chinese government warnings of infections close to out-of-control levels. The bull camp has a couple supportive supply-side development from news that the Panamanian government has given First Quantum (a Canadian copper mining company in Panama) a final offer on negotiations over tax payments and from news that Chilean November 2022 copper production declined by 5.5% versus year ago levels.
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