Written Commentary
GOLD / SILVER
Despite weakness this morning, the gold market has forged a moderate rally this week but could be at risk of a sharp selloff unless the Fed chairman speech this morning on balance is more dovish than hawkish. Unfortunately for the bull camp, the dollar has pushed to a 2 1/2 month high leaving both gold and silver even more vulnerable to the Fed chairman speech today. While the CME Fed watch tool still shows a very high probability the Fed will not hike rates next month, those odds have declined and the trade hopes to garner significant clues on the Fed’s bias in today’s action. However, the Fed chairman is likely to keep inflation expectations anchored with a balanced view of inflation and economic risk and therefore it could be difficult to reverse what has become a very definitive uptrend in the dollar. In conclusion, the bull camp has the potential to maintain control, but prices will be heavily impacted by forces beyond classic internal factors.
PLATINUM / PALLADIUM
Despite lower gold price action, higher US dollar action and a notable daily outflow from platinum ETF holdings, the platinum market sits just under yesterday’s multiweek high. In today’s action, the platinum market will see direction dictated by a financial market chain reaction led by the action in the dollar following the Fed chairman’s speech at the annual Fed symposium. With a higher high for the move yesterday extending a pattern of higher highs to 6 trading sessions, the charts have shifted positively. However, we suspect buyers of platinum were heavily motivated by strength in global equities this week. In fact, classic bullish fundamental news on platinum is hard to find and into the high yesterday, platinum was trading $67 above last week’s lows. We leave the bias pointing up but suggest a failure of chart support could throw prices quickly down next week. In retrospect, the palladium market is without changing fundamentals and is clearly without speculative interest and therefore yesterday’s reversal is likely to result in a further slide back to consolidation support.
COPPER
We think the 3-day low over night is a “pointer” for today’s action. Obviously, a stronger dollar gives the bear camp an early edge and given Chinese headlines overnight indicating the difficulties facing the Chinese government in stimulating its economy, the path of least resistance shifts down. While not a major negative, seeing LME and Shanghai copper warehouse stocks increase further deflates the tight supply argument leaving both supply and demand impacts today bearish. This week Shanghai copper warehouse stocks increased 1,357 tons which is not significant, but any build is obviously bearish. Another bearish theme was present in the headlines overnight with forecasts predicting a multiyear surplus of 200,000 metric tons. However, that surplus forecast was predicated on a strong recovery in mining activity and a softer than expected pace of decarbonization of vehicles. In the end, the bull camp needs dovish Fed dialogue today and a true dollar reversal to avoid a significant week ending corrective setback.
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