Possible Paradigm Shift in Metals

GOLD / SILVER

With the gold market this morning sitting near the highs of the upside explosion yesterday, bullishness remains in place. While the dollar has not posted a lower low today the index sits just above the downside breakout point leaving negative charts and widely anticipated pressure expected from the Fed decision this afternoon. While it might be premature, a paradigm shift may have taken place in the precious metal markets. In fact, after suffering under a sustained wave of aggressive US rate hikes, it appears the US Federal Reserve has the justification to become more cautious with their tightening. With the added windfall from the softer CPI report rekindling the September through December downtrend in the dollar, it appears that the bull camp in gold and silver has seen their case broadening to multiple themes. However, the US Federal Reserve is still widely expected to hike rates 50 basis points later today, and they might attempt to keep inflation expectations anchored by suggesting the inflation battle will continue until a broad cross-section of price measures have come down. Therefore, today’s Fed statements could result in a short-covering bounce in the dollar and a long profit-taking dip in gold and silver prices later today. On the other hand, both gold and silver rallies yesterday were very impressive on the charts and were forged on jumps in trading volume.

PALLADIUM / PLATINUM

While palladium and platinum are showing divergence this morning both markets should derive support going forward from yesterday’s news that South African PGM output in the month of October declined by 32.5% versus year ago levels. However, we see palladium as mostly immune to sustained pressure from the Fed action later today as prices have not inflated recently and the market retains a net spec and fund short. However, we do see the platinum market very much in the volatility line of fire today. We are a little surprised that the palladium market showed as much sensitivity to the US CPI report as it did as the contract forged a wide trading range of $23 yesterday only to finish in the middle of the range. Over the long run, the softer US CPI reading should be supportive of palladium but the status of the Chinese infection situation and their willingness to continue to reopen portions of their economy should be a much bigger impact on prices. While the platinum market also forged a very wide trading range like palladium yesterday, it managed to retain a large measure of the rally and forged the 3rd highest close since early March.

COPPER

Even though March copper exploded yesterday and briefly rose above the 200-day moving average ($3.9190) the market gave up more than half of the initial rally. However, the copper market is trading in positive ground this morning despite headlines from Beijing indicating Covid cases have exploded in the capital city. On the other hand, portions of the trade continue to expect China to support its economy with an infrastructure push. A 2023 Copper Outlook paper from Bloomberg overnight projects a balanced copper market with signs of recovering demand not expected until the 2nd half. However, others see increased environmental pressures on copper producers resulting in new and complex production techniques which will result in higher production costs and delays in supply flows. However, buyers were certainly motivated following signs of softening US inflation from the US CPI report yesterday and perhaps from the removal of additional Chinese Covid rule restrictions. However, seeing China relax some international travel rules is hardly a significant development for copper demand.

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