Supply Tightness Fears Deflated

COPPER

While we think the copper market forged an intermediate low with yesterday’s washout, another very significant 6,952-ton inflow to LME copper warehouse stocks overnight has deflated supply tightness fears again. The large single day inflow to LME copper warehouse stocks follows a long string of daily inflows and that virtually erases last week’s 16,000-tonne plus outflow from Shanghai copper warehouse stocks even though that outflow was the 11th straight weekly outflow. On the other hand, daily LME copper warehouse stocks are expected to continue a very consistent pattern of inflows ahead which could be the result of soft demand forces or more likely might be the result of arbitrage with Shanghai. Certainly, seeing the Chinese central bank provide liquidity yesterday serves to countervail the disappointment from the decline in new loans inside China from last week.

GOLD / SILVER

Despite noted weakness in the dollar this morning, the gold market continues to retrench, and its charts look bearish into today’s potentially critical US debt ceiling negotiations. Perhaps the gold market is undermined following reports from the Indian government that their April gold imports declined 45%-to-3-month lows largely attributable to record prices crimping demand. A measure of flight to quality buying of gold, silver, platinum, and palladium could return if today’s meeting between the US President and Congressional leaders fails to solve the debt ceiling problem. If the debt ceiling negotiations unfold as in the past, no deal will surface until the last minute. According to Bloomberg and other market pundits, gold remains the “best” flight to quality instrument, especially if the crisis is isolated within the US. China released industrial production and retail sales readings for April today, both of which failed to rebound as significantly as predicted. The silver market appears to have failed at solid support this morning at the $24.00 level, shifting the charts bearish and potentially targeting $23.73. Therefore, the bull camp will need positive action in US equities following the adjournment of the US debt ceiling meeting today between the US President and Congressional leaders.

PLATINUM / PALLADIUM

In a very major overnight development, platinum ETF holdings saw a massive inflow of 40,014 ounces, which is a single day gain of 1.2% which in turn puts the year-to-date gain in holdings at 9.3%. Unfortunately for the bull camp, the platinum market retains a significant net spec and fund long positioning relative to the last 12 months. Platinum bulls should see some support from the Chinese addition of liquidity yesterday and could see very minimal support from Chinese industrial production and retail sales reports, as they depicted growth even if the growth was softer than anticipated. Like the platinum market, the palladium market also saw a noted inflow to ETF holdings yesterday with 4,357 ounces added pushing the year-to-date gain in holdings up to 13%. Unlike the platinum market, the palladium market should be capable of rejecting noted selling, as the net spec and fund short remains significant and that positioning could be forced to the sidelines today if there is a budget deal.

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