Platinum Likely to Pull Back

PALLADIUM / PLATINUM

Obviously, the palladium market has had its knees taken out by yesterday’s Fed news and the prospects of a downside breakout looms large. While the overall macroeconomic outlook was undermined by yesterday’s US Federal Reserve developments, the palladium trade should be minimally supported by a Reuters poll suggesting platinum prices in the 4th quarter will average $2,069. The December palladium contract fell below the $2,000 level on October 14th and is showing signs of breaking down below $1,800. Fortunately for the bull camp, the last COT positioning report in palladium showed a net spec and fund short of 2,228 contracts before the market fell $112 after the report was compiled. A fresh failure in December palladium is seen with a decline below $1,800. Apparently, the prediction of rotation from high priced palladium to cheaper platinum in catalytic converter production has resulted in definitive divergence between the two markets over the prior two months, but the economic letdown from the US Fed stance is likely to see the overbought platinum market pull back aggressively in the near term.

GOLD / SILVER

Clearly, the net Takeaway from the FOMC meeting has resulted in a rekindling of recession fears from the potential of over tightening. In addition to currency related selling in gold and silver this morning the markets are seeing spillover pressure from a jump in US treasury yields. In fact, yesterday the Fed chairman indicated that their upside targeting for Fed funds will likely result in a higher rate than previously forecasted by the central bank. While not a major negative, gold ETF holdings yesterday declined by large 100,783 ounces and those holdings are nearly 3% lower year-to-date. At least in the near term, the recent boost in global gold demand from the World Gold Council quarterly report is tossed aside. Even though the markets earlier in the week saw rumors suggesting China might be preparing to exit their Zero Covid policy, daily infections have caused expanding activity restrictions. Given the hawkish tone of the Fed yesterday and the impressive sharp range up move in the dollar this morning, currency related pressure is likely to become a fixture in the days ahead. Critical and highly suspect support in December gold today is close to the market at $1,621.10, but the market is likely to knife straight through that contract low. Not surprisingly, the silver market has once again held up impressively in the face of very negative gold price spillover as the speculative trade in silver seems to view the $19.00 level as some form of value.

COPPER

All things considered, the action in the copper market this week has been impressive as the Covid situation in China continues to increase headwinds for the economy. Furthermore, overnight a Chinese Caixin services PMI report for October came in softer which rekindles Chinese copper demand concerns. However, LME copper warehouse stocks continue to fall precipitously with the overnight decline of 8,250 tons suggesting an acceleration of withdrawals is underway. Over the past 3 weeks, LME copper warehouse stocks have declined by nearly 30% and that follows a 29% decline in weekly Shanghai copper warehouse stocks last week. Fortunately for the bull camp, the last COT positioning report showed copper holding a net spec and fund short of 14,907 contracts which could result in a “mostly sold-out” spec positioning on a return to the bottom of the consolidation. In another bearish development, the International Copper Study Group yesterday predicted the world refined copper market in August had a deficit of only 16,000 tonnes. Even though the hike in US rates yesterday did not result in a broad risk off selloff of physical commodities, the trade this morning is fully involved in a risk-off commodity market washout. While we expect copper to continue to chop within a $0.20 trading range, the path of least resistance is down with major bearish demand views and very bearish outside market action capable of causing a downside breakout of the range below key support at $3.3615.

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