Silver Fails to Rise with Gold

GOLD / SILVER

With a gap lower range down trade in the dollar the bias in gold and silver is up in today’s early action. Not surprisingly, gold has forged a higher high trade with the highest price since June 23rd in a sign that dollar action is once again the primary focus of the gold trade. However, gold and silver are likely benefiting to a lesser degree from firmer treasury prices and from ideas that the Russians will continue to boost gold reserves through repatriation of foreign holdings or simple internal buying by their central bank. In a very bullish longer-term development, the World Gold Council overnight suggested the Indian government expand its Gold Monetization Scheme by stepping up efforts to buy local retail coin and bar deposits and by offering further bank programs like gold bonds for the country to reduce its gold imports and help its current account balance. While there is overnight buzz suggesting that gold could rally post US CPI report release, the trade must embrace the idea that US rate hikes are nearing an end and inflation is coming under control. On the other hand, there have been arguments made suggesting the Fed’s goal is lowering inflation, which will likely require more effort than simply leveling inflation at present levels. On the bright side of the equation, the New York Fed has indicated they see inflation beginning to fall and there has been several global economist predictions that China is exporting deflation to the world. Certainly, declining US treasury yields this morning are a relief to the precious metal trade, but yesterday hawkish US Federal Reserve dialogue flowed from several members. Looking at upside potential, August gold has closed above a 2 1/2-month-old downtrend channel resistance line for 3 consecutive sessions and as indicated already, that action was forged on a surge in trading interest and activity and therefore a trade above $1,950 is possible. Like the gold market, the silver market forged an upside breakout and extended its uniform pattern of higher highs and higher lows yesterday, but the market has failed to rise in sync with gold today.

PLATINUM / PALLADIUM

While the October platinum contract has not managed a fresh higher high in the early going today, the market has maintained yesterday’s impressive gap up rally and seems to have established support at $925. In a positive development, platinum ETF holdings yesterday saw an inflow of 8566 ounces resulting in a year-to-date gain of 6.8%. Apparently, the recent article in the Globe and Mail regarding the potential for a very negative platinum demand future from the transition to EVs has been largely ignored, leaving the platinum market in a short covering bounce. However, as in many physical commodity markets today, US CPI will likely set a chain reaction in motion with the dollar impacting treasuries, equities and then commodities. Therefore, we expect platinum to generally track with US equities. While we give the edge to the bull camp but are highly suspicious of the capacity to make $925 solid resistance into $925 solid support without further consolidation building. With the palladium market tracking virtually sideways and in an extremely narrow trading range for 8 trading sessions, it is clear the market lacks fresh and market moving fundamental forces. However, palladium prices have forged a 4 day high in the early trade today, with the market holding an extreme net spec and fund short position and therefore a trade above $1272.50 could prompt a wave of stop loss buying. Otherwise, the outlook for palladium prices is nondescript.

COPPER

While the latest Chinese government effort to save/support the beleaguered Chinese property sector with lower interest rates is supportive of the economy, Chinese stimulus efforts continue to fall short of rekindling animal spirits in the country. However, the supply-side of the equation continues to provide support with the overnight decline in LME copper warehouse stocks of 2,625 tons putting LME copper warehouse stocks within 3000 tons of 17 1/2 year lows. In a very modest offset to the exchange stock tightness, Central Asia Metals posted a 1.5% first half increase in copper production. While not a major influence, action in the dollar today following the US inflation report will influence copper prices indirectly but might only enhance or limit copper’s initial reaction to the latest macroeconomic tilt in the marketplace. From a technical perspective, the copper market extended its modestly bullish technical picture with the tenth day of upwardly sloping price action. However, as indicated already the market was unable to sustain initial gains from the latest Chinese effort to stimulate their economy through lower interest rates for property sector borrowers. While the downtrend in the dollar is supportive of copper prices, today’s US CPI report will likely determine the direction of copper prices for the rest of this week.

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