GOLD / SILVER
While global equity markets were higher overnight and produced a measure of risk on sentiment, economic news overnight was generally discouraging with European and factory activity contracting last month while Chinese June PMI readings marginally improved but were heavily offset by a survey predicting “gloom to spread from weak Chinese growth”. Fortunately for the bull camp the dollar is showing only minimal strength as a 10th straight daily outflow from gold ETF holdings highlight a market still out-of-favor with investors. While gold and silver managed a recovery bounce at the end of last week, fundamental and technical forces remain bearish in both markets this morning. Certainly, evidence of falling US inflation from US PCE in May last Friday dampened fears of higher US interest rates and in turn tempered strength in the dollar. Obviously, physical demand is initially focused on the world’s largest consumer (China) which has clearly provided evidence of an economy struggling to gain positive traction. Before gold prices react to improved Chinese physical gold demand signals, we think the copper market will already be showing signs of significant improvement in Chinese demand, and therefore traders might utilize copper as a leading indicator of the trend in gold. In the near term, the pendulum of US rate hike prospects was inched toward three more hikes this year by the US Federal Reserve chairman at a central banker’s conference last week and that increase in rate hike prospects has been fortified by positive US data. Fortunately for the bull camp, gold and silver do not appear to have significant flight to quality premium in prices attributable to the Russian invasion of Ukraine and therefore a cease-fire, peace deal, or a simple withdrawal by Russian forces might result in price gains. We continue to suggest copper will diverge with gold with silver attempting to embrace classic physical commodity market forces which could result in silver correlating with copper, equities, and crude oil.
While the copper market has managed a modest recovery from last week’s spike low, four different Chinese efforts to support/stimulate their economy have failed to provide confidence of a recovery. In fact, world commodity markets remain concerned of softening Chinese physical commodity demand. Fortunately for the bull camp, Chinese Caixin manufacturing PMI data for June was stronger than expected but was unfortunately below the previous month. However, a portion of the copper trade is disappointed with the 7,889 to a net inflow to Shanghai weekly copper warehouse storage last week with an increase of 13.1% on the week seen as a sign of soft Chinese copper demand. Certainly, a portion of the ongoing fear of soft Chinese copper demand is countervailed by news last week that Chilean copper output in May dropped by 14% versus year ago figures. However, with a minimal net spec and fund long from the last positioning reading followed by a slide of $0.11 the spec trade last week likely shifted to a net short around the June lows. Therefore, further gains are likely to spark stop loss buying especially against a background of stronger global equities this morning.
PLATINUM / PALLADIUM
Like the gold and silver markets, the PGM markets lack a specific fundamental force capable of shifting sentiment away from the bear case. Obviously, the technical conditions of platinum and palladium are becoming significantly oversold from classic short-term technical measures, with platinum in June forging a high to low slide of $162! Unfortunately, from a historical perspective the charts now offer little support until $875 with the market recently not benefiting from signs of further inflows to Platinum ETF holdings. In fact, Platinum ETF holdings on Friday increased by a very material 8536 ounces which pushes the year-to-date increase in holdings to 6.2%. Like platinum, the palladium market has very little positive fundamentals to slow and/or reverse the downtrend. However, the latest positioning report showed Palladium with a new “record short” position which is understated given the post report slide of $90.
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