GOLD & SILVER
The dollar is higher this morning as worries about recession in Europe (driven by an energy crisis) and expectations for higher interest rates US lend support, and this has pulled gold off its earlier highs. The euro fell to a 20-year low overnight after Russia cut off natural gas supply to Germany. Gold did find support in India as the worsening energy crisis in Europe appeared to spark safe-haven demand, but that strength has not held, and the market is back near unchanged. We maintain that Friday’s rally in gold, silver, platinum, and palladium were driven by technical short covering, which puts last week’s lows in doubt. The dollar has a macroeconomic edge over the other currencies, and we think it would be premature to expect a sustained slide.
PALLADIUM & PLATINUM
The platinum market saw some short covering late last week after trading to its lowest level since June 2020, and the market clearly is oversold enough to warrant a technical correction. However, it faces similar obstacles that gold and silver do, with underlying dollar strength and competition from interest bearing instruments undercutting investment interest. The market could garner fundamental support from the World Platinum Investment Council’s optimism regarding automotive demand. The group reported a world platinum surplus of 349,000 ounces in the second quarter and projected the annual surplus to reach 974,000 ounces, up from the previous estimate of 627,000 ounces. Like gold and silver, the PGMs are seeing investment interest fall off. The physical demand outlook is mixed, with the US economy showing resilience but Europe and China facing energy and Covid threats.
After falling to their lowest level since late July overnight, December copper reversed, rebounding 14.90 cents off its low, forming an outside day higher. If global risk sentiment continues to improve, the market could build upside momentum this week. In a minor bearish development last Friday, Shanghai copper warehouse stocks jumped 7.4% last week, which moderates Chinese domestic tightness fears. In contrast, LME copper stocks reached their lowest levels since mid-April and have seen 14 draws over the past 16 sessions. After reaching a 4-week low last Thursday, the Shanghai Composite has put together 3 positive daily results in a row, which may help soothe demand concerns.
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