PALLADIUM / PLATINUM
Given the sustained leadership action in platinum prices we will shift our daily focus to platinum and away from palladium. However, the platinum market this morning is showing anything but positive leadership with prices spiking down and reaching the lowest level since December 29th. On the positive side of the platinum ledger ETF holdings yesterday saw a very significant inflow of 13,342 ounces which amounts to a single day increase of nearly 1/2%. Perhaps the sharp slide off the January highs and the potential for a Fed pivot has inspired investor interest. While we are highly skeptical of the potential for the US to mint a $1 trillion platinum coin (as a method to increase currency and temporarily solve the debt ceiling crisis), intense fighting in Congress over the debt ceiling might keep talk of minting a massive platinum coin in place. A $1 trillion platinum coin would require 1 million ounces which is clearly a material amount given the world platinum supply and demand balance has not posted a 1-million-ounce surplus since 2011! On the positive side of the palladium ledger, the market did draft some lift from a temporary market euphoria support following yesterday’s inflation report. On the negative side of the equation, palladium reversed aggressively and violated psychological support at $1,700.
GOLD / SILVER
Despite a bearish wave of risk off psychology and fighting weakness in other precious metal prices, the gold market is attempting to hold modest early gains today. In our opinion, that suggests the bull camp remains confident and hopeful of a resumption of the downward track in the dollar. Fortunately for the bull camp, the US dollar is tracking lower early today and sits 70 points below yesterday’s high with the downtrend pattern on the charts leaving the prevailing direction in favor of the bear camp. While the markets are not fully embracing the idea of a Fed pivot and that factor will remain paramount in the dollar index trade, the bull camp should also acknowledge the potential for developing headwinds from definitively weak US data like yesterday’s retail sales. Certainly, the Dollar index reached a very significant short-term oversold condition and therefore the recovery off the low yesterday was not surprising. On the other hand, the prospect of sharp further declines in the dollar is good and a slide below 101.68 could rekindle fresh gold and silver buying. In fact, the dollar index yesterday initially reached the lowest level since May, with confidence among the bear camp boosted significantly by the combination of falling inflation and slowing retail sales in the US. While gold and silver prices did not seem to benefit from the sharp decline in US treasury yields yesterday, falling yields ahead should firm up support and entice bargain hunting buying on dips.
With a risk off mentality extending into another trading session and copper prices forging very significant gains from this month’s lows a noted correction is fully justified. In fact, with yesterday’s blowoff rally and reversal on significant trading volume and rising open interest, yesterday’s action has the hallmarks of a top. In fact, with a massive range up pulse in copper yesterday producing a 2-day low to high rally of $0.24 and a $0.13 rally in several hours, the market was obviously technically overdone. Furthermore, with copper prices early today sitting nearly $0.20 below yesterday’s highs, the bull camp should be feeling significant pressure to liquidate. On the other hand, the bull case in copper remains solid from the supply-side, with several key producing areas in the southern hemisphere facing outages from environmental protests and from government intervention. Yesterday a committee of Chilean ministers rejected a request for copper mining permits with the government attempting to reduce negative environmental impacts from large-scale mining. Production in Peru is also threatened because of protests around a mining operation. However, it also appears that a pattern of daily declines in LME copper warehouse stocks has returned.
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