Palladium Under Spillover Pressure

PALLADIUM / PLATINUM

Even though the palladium market failed to rally as much as other precious metal markets over the first 3 weeks of December, the market is under spillover pressure from the reversal of psychology in the metals markets and from distinctly negative outside market influences. In an indirect and longer-term negative impact, the significant signs of slowing in Chinese economic data overnight combined with the explosive infection wave is a serious threat to Chinese auto consumption and therefore a threat again demand for auto catalyst inputs like palladium. On one hand, the setback in platinum prices this morning is clearly justified by the pressure flowing from macro-economic developments, but with platinum recently posting a moderate rally off the early December low, the declines this morning could have been even more significant. With a recent consolidation at $1,001.60 odds are good that platinum can escape the current commodity downdraft without severe and permanent damage on the charts.

GOLD / SILVER

While we think the magnitude of the declines in gold and silver prices this morning is exaggerated given fundamental developments the markets were short-term overbought prior to yesterday’s US rate hike decision. In addition to a precious metal negative environment from the barrage of anticipated rate hikes, the dollar has recovered and is applying additional pressure to gold and silver prices this morning. Unfortunately for the bull camp in silver, ETF holdings of silver yesterday declined by 1.7 million ounces and that decline was the 3rd straight daily decline. Adding into the downward motion in precious metal and other physical commodity markets this morning is a deteriorating view toward the Chinese economy after Chinese economic data overnight highlighted an economy already contracting sharply. Furthermore, headlines regarding the explosion of Chinese infections suggest activity going forward is likely to slow even further. Not surprisingly, Indian buyers stepped back from the gold market overnight citing expensive prices and fear of rising rates. In the end, a paradigm shift might be nearing for gold and silver but residual headwinds from the uncertainty in the global economy in the short-term gives the bear camp the edge. Not surprisingly, the breakneck gains in silver have resulted in a very aggressive corrective setback today with investors potentially losing their appetite for the metal above $24.00. We suspect the deterioration in the Chinese economy and concerns of additional economic headwinds from global rate hikes has also downshifted physical demand hopes for silver.

COPPER

On one hand, seeing March copper respect the $3.80 level this morning in the face of extremely negative Chinese developments is impressive. However, the Chinese economy showed precipitous contractions in broad-based industrial measures overnight and expectations are that slowing will be compounded by the surging Covid crisis. In the end, the bullish buzz toward the Chinese re-opening of their economy has evaporated and the positive risk on mentality from the downtick in US and UK inflation is more than offset by the barrage of rate hikes expected today from global central banks. Unfortunately for the bull camp, the Chilean state copper production agency yesterday pegged their output to grow 7.5% next year. On the other hand, the Chilean national copper company also announced their 2022 copper production was set to contract by 5.8%. Today LME copper warehouse stocks declined by 1800 tons.

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