GOLD / SILVER
The inverse correlation between the dollar index and precious metal prices is on full display this morning with a minimal downside extension in the dollar resulting in a very significant pulse up move in gold and silver. In a sign of positive demand mainland Chinese imports of gold rose on a month over month basis. While not a significant increase Hong Kong July net gold exports to China increased by 8.2 tons in July with total gold exports from Hong Kong to China increasing by 10.4 tons. Fortunately for the bull camp, yesterday gold ETF holdings saw an inflow (33,893 ounces) temporarily countervailing an established pattern of outflows. However, silver ETF holdings continued their precipitous declines with a 3.9-million-ounce single day outflow which raised the year-to-date outflow to 12%.
PALLADIUM & PLATINUM
From a technical perspective, we see the palladium market temporarily oversold and capable of a short covering bounce. In fact, adjusted into the Monday low, the net spec and fund short in palladium is likely tracking back toward record short positioning. Reports of record US auto dealership profits could be a longer-term positive demand development for the PGM markets, as strong dealer financial positions could allow for aggressive inventory rebuilding when vehicles are available. In the near term, the palladium market could be seen as a rudderless boat taking significant direction from the ebb and flow of macroeconomic sentiment.
With a general risk on vibe flowing from equities and fresh Chinese stimulus ($146 billion) the copper market this morning has caught a slight bid. However, we have a gut feeling that copper prices are vulnerable to a near term setback in prices to recent consolidation support beginning at $3.57. In addition to disappointing US durable goods results a major copper producer yesterday (KAZ Materials) posted a first half copper output increase of nearly 20% on an approximate supply of 180,000 tonnes.
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