Written Commentary
PLATINUM / PALLADIUM
We are still unclear on the source of the strength in platinum since the early September lows, and with a large 6105-ounce outflow from ETF holdings yesterday, a surging US dollar, higher for longer interest rates and vulnerability in the gold market. Shifting our coverage to the January platinum contract, the near-term downside targeting from this week’s key reversal is $915.80. However, negative macroeconomic headwinds do not look to be easily reversed in the near term and China has not provided fresh stimulus since late last week and that allows Chinese auto catalyst demand expectations to soften further.
GOLD / SILVER
With the dollar bulls surviving and then thriving in the wake of a pause by the US Fed and a downside breakout in US initial claims yesterday the uptrend in the dollar looks to expand. Furthermore, given the bearish addition of a significant leap in US interest rates the path of least resistance in gold remains down. However, divergence between gold and silver makes us suspicious of the rally in silver which could result in a short sale opportunity if December silver reaches $24.25. Not surprisingly, the “pause” by the US Fed resulted in a gold market head fake followed by signs of a resumption of the May through early September downtrend in gold. In fact, US interest rates remain near their spike highs from yesterday keeping key outside market influences distinctly bearish for the precious metal markets. While there are periodic signs of negotiations on the US debt ceiling, the clock is ticking with only seven days left before a government shutdown, but gold has not managed to embrace flight to quality buying for a very long time. It is possible that “this time will be different” as credit rating agencies downgraded US government debt earlier this year and laid part of the blame on poor US governance. In conclusion, the path of least resistance is down in gold unless geopolitical anxiety spikes from palatable anxiety flowing from the equity markets.
COPPER
Fortunately for the bull camp overnight exchange stock data was slightly supportive with LME copper warehouse stocks unchanged and Shanghai copper warehouse stocks falling 10,981 tons. However, Chinese information usually trumps international information in the copper market and China has not announced fresh stimulus news for six trading sessions leaving the copper bears confident. In addition to short covering gains from the mid-September washout of $0.19 copper bulls saw minimal support from overnight news that Polish copper mining giant KGHM posted a 2% decline in August production. However, lower production news from Poland is offset by a 6% decline in KGHM sales last month and by the surprisingly large improvement in production in Peru reported earlier in the week. In fact, Southern Copper pegged its annual production increase at 470,000 tons which easily erases the projected deficits from the International Copper Study Group.
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