PGMs Await US CPI Release

PALLADIUM / PLATINUM

From a minimally bearish technical perspective the April platinum contract was unable to make a higher high early overnight and has failed to consistently respect support at $1000. Fortunately for the bull camp platinum ETF holdings yesterday increased by 4,884 ounces and are now 3.3% higher year-to-date. Further support for PGM prices is presented from news that South African PGM mining output for January declined by 15.2% relative to year ago levels. In other words, instead of tracking physical/industrial commodity demand fundamentals, both PGM markets yesterday behaved like financial instruments. However, as in gold and silver, the PGM markets today will face another extremely critical volatility junction in the form of the US CPI release. If the takeaway from the US CPI report screams for aggressive US rate hike policy ahead that could collide with economic and financial threats for an extremely powerful flight to quality event for PGM prices. However, traders still need to monitor upcoming inflows and outflows to PGM ETF instruments (which are already seeing consistent inflows this year) as a bulge in inflows could signal a wave of money is flowing toward the PGM markets.

GOLD / SILVER

With the gold market this morning sitting more than $100 above last week’s low, the net spec and fund long positioning signaling long liquidation potential and the dollar showing a minimal recovery effort early today, the bear camp has an edge until the CPI report release. From a technical perspective, traders are pointing to the significant jump in trading volume on the $100 rally over the prior 3-days and have concluded the core of the bull case in gold is strengthening. However, the gold bulls might see very temporary support from further confirmation of declining gold output from South Africa where their January gold output declined by 3.7% versus year ago readings. It should be noted that gold and silver over the last two decades have not typically benefited from a flight to quality developments, but both markets appear to be displaying bullish sensitivity to uncertainty. On the other hand, after the fear of contagion moderated and US equity markets recovered yesterday gold, silver, palladium, and platinum continued to hold their gains giving further credibility to the bull camp. Looking ahead, today’s US CPI readings (combined with several other global inflation measures) could result in significant debate over the next week’s US rate hike size, hot readings could enhance limited concerns that inflation will not be contained by monetary policy and the outlook for the global economy could be downgraded significantly if global rate hikes are expected to become “large” again.

COPPER

Not surprisingly, copper like other industrial metal markets came under long liquidation pressure yesterday from sagging demand fears associated with the prospect of a US financial system problem. However, it should be noted that the stock markets in Shanghai yesterday started the week on a positive track, Shanghai weekly copper stocks broke a trend of large inflows with a large outflow late last week, and the new Chinese Premier made it clear yesterday the Chinese government was there to support companies in the private sector which would include copper smelters, and industrial copper users. On the other hand, with the recent liquidation of the net spec and fund long in copper from the end of January, the copper trade does not look to be particularly vulnerable to a mass risk off inspired washout from outside market events today. While Chinese data on industrial production and retail sales for February will not be released until Wednesday morning (Asian time) expectations call for those readings to improve and that could help copper respect recent consolidation low support levels on the charts.

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