Palladium Locked in Downward Slope

PALLADIUM / PLATINUM

While China’s move to lift some Covid restrictions may have provided a lift to platinum, palladium remains locked in a downward slope. January platinum had an outside day higher on Wednesday, which suggests that the market may take another run at the November and December highs at $1,074.10 and $1,066.80. Without a dominant supply/demand theme, palladium probably needs some indication of stronger automobile manufacturing activity (likely in China) to embark on a bull run. Lowering Covid rules is a start, but the market could use some indication that the Chinese government is committed to getting their economy rolling again.

GOLD / SILVER

In retrospect, traders might have been too quick to conclude that the Fed is softening its rate stance. That seemed to be on traders’ minds earlier this week with the recent pattern of strong US economic data. Furthermore, with very critical inflation news expected from China tonight and the US PPI report on Friday morning the markets are likely to get fresh direction of Fed policy. Obviously, with Bonds and Notes trading up to their highest levels since September on Wednesday, the markets continue to signal that the Fed will pare back its rate increase to 50 basis points this month after a series of 75-bp hikes earlier this year. In the end, with the subject of tempering tightening in the marketplace today’s jobless claims will take on added importance for gold. Gold and silver benefited from a weaker dollar on Wednesday, but the Dollar Index has held above Monday’s lows, and it would probably take a trade below there to support a stronger rally for gold. The Peoples Bank of China added to their gold holdings for the first time in three years in November, which is fundamental bullish factor if this is the start of a new trend. Reports are that the Chinese central bank is attempting to diversify away from the dollar, but we suspect the Chinese central bank has been adding consistently to its gold reserves secretly on-and-off for years. We base the view they are dramatically raising their holdings as US gold reserves are reportedly 8,133 metric tons which is more than 4 times Chinese central bank gold reserves holdings of 1948 metric tons. Unfortunately for the bulls, the technical picture is looking shaky, as Monday’s rally above the November high was met with lower volume and open interest and divergence with momentum indicators. Both gold and silver could have a difficult time avoiding back-and-forth action until the PPI report on Friday is known.

COPPER

The bias in copper continues to point up despite relatively confusing Chinese Covid headlines. However fresh support for copper prices today is seen from an upward revision in a Goldman Sachs copper price forecast. Supposedly, seeing the beginning of a relaxation of policies on the restriction of activity in China is expected to rekindle concerns of the ultra-tight domestic copper supply. China’s November unwrought copper imports as well as their November copper ores and concentrate imports came in above October’s totals, which reflect some improvement in the Chinese near-term demand outlook that strengthened copper prices. News that Chinese authorities have taken further steps to relax their Zero Covid policies provided additional support to the copper market yesterday. While copper prices remain within their early December consolidation zone, the charts appear to be setting up for an upside breakout that could project prices above the 200-day moving average at $3.93. While LME copper stocks had a sizable build on Wednesday, that was their first daily increase in 7 sessions as they are below November month-end levels and are well below their third quarter ending totals.

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