Mixed Signals for PGMs This Morning

PALLADIUM / PLATINUM

The palladium market starts 2023 sitting comfortably in the middle of the last 6 days trading range which is bound by $1840 and $1750. Last week palladium ETF holdings increased by a mere 587 ounces and finished 2022 with a net outflow of 17%. Platinum ETF holdings last week showed an increase of 15,006 ounces and ended 2022 with a decline of 16%. The markets are experiencing mixed signals this morning with higher equities providing an offset to disappointing data from UK manufacturing, but the bull camp was saved by a slightly stronger-than-expected Chinese manufacturing PMI reading for December and by an improvement in GBP S&P global manufacturing PMI readings for December. There is also chatter in the marketplace of possible stimulus from Chinese government as economists suggest the December manufacturing reading below the prior month’s reading highlights the vulnerability of the Chinese economy. In fact, according to CNN there has reportedly been a “leaked” note from Chinese health officials indicating that there were 250 million infections in December! The platinum market is becoming significantly overbought from a net spec and fund long positioning perspective. In the middle of December, the net spec and fund long in platinum was nearing the highest levels of 2022 and from the report mark off to this morning’s high the platinum market gained $63 putting the net spec and fund long near the highest levels since April 2021.

GOLD / SILVER

When the Press is lost for an explanation of a market reaction, they usually indicate technical forces have been in control. However, the strength in gold and silver prices this morning is made even more surprising by the fact that the dollar has reached the highest trade in 10 sessions! On the other hand, a significant run up in treasury prices (lower yields) has apparently provided a significant offset to the dollar strength. Some traders have suggested the rally is anticipatory of dovish dialogue from the upcoming US Federal Reserve meeting minutes which will be released on Wednesday. Even though investors are not showing signs of turning positive toward gold and silver, hedge funds have apparently increased their bullish bets on the market in both gold (6 month high) and silver (8 month high). The speculative trade might have been stirred into action by predictions of a “tough year” ahead for the global economy from the IMF. With the latest COT positioning in gold showing a net spec and fund long at the highest level since the end of June and considering that February gold this morning is trading $25 above the level where the last positioning report was calculated, the gold market is becoming overbought. However, with 169,861 contracts net long the net long was still 90,000 contracts below the largest 2022 net spec and fund long high. As in the gold market the net spec and fund long position in silver is building with the latest reading putting the long speculative position at the largest level since April 2022.

COPPER

The copper trade appears to be discounting overnight press coverage that leaked Chinese official reports indicate that up to 250 million people were infected with Covid in December. However, the market is likely deriving support from a better-than-expected manufacturing PMI reading, but the PMI reading was below the prior month’s reading. The copper trade remains hopeful of Chinese stimulus because of the Covid threat but out of control spread might overwhelm and discount most Chinese government stimulus offers. It should also be noted that both LME and Shanghai copper warehouse stocks increased last week, and the trade is beginning to look ahead to the Chinese lunar new year which begins on January 22nd. In a minimally supportive supply-side development Chile reported their November copper production to have declined by 5.5% and Panama President has indicated they have presented the Canadian copper miner with a final contract to regulate operations. Apparently, the Panamanian government is looking to increase annual royalties from the mine to $375 million! Fortunately for the bull camp, the net spec and fund long positioning in copper remains benign with the market this morning at times trading below the level where the last report was measured.

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