Temporary Rally in Gold

GOLD / SILVER

Initial weakness in the dollar overnight translated into a temporary rally in gold to start the trading week. Given the one-way street to unending jumbo US rate hikes, it is not surprising that gold reversed direction aggressively at the end of last week in the wake of suggestions that November’s 75-basis point US rate hike might open the Fed to a slight moderation of the pace of increases in the December meeting. On the other hand, the Fed last week made it very clear that softening in the economy will not deter their battle against inflation, but that gold bearish theme was countervailed by words of caution from a Fed member indicating the Fed could not “overdo it”. In yet another inflation tempering US official commentary, the US Treasury Secretary indicated that inflation was not “embedded” in the US economic structure. Unfortunately for the bull camp in treasuries, equities and physical commodities last week saw historical inflation readings from the UK and Europe. Over the weekend reports from India suggested that pre-festival gold buying has been unremarkable despite gold prices last week reaching the lowest level since the beginning of the pandemic. Given the silver market’s capacity to stand up to weakness in gold and significant strength in the dollar last week and in turn respect the $18.00 level over 6 trading sessions, the range up move on Friday could signal silver’s newfound bullish capacity especially if extreme hawkish Fed views are tempered further. It should be noted that the net spec and fund long in silver remains extremely low compared to the last 3 years but is not as liquidated as the gold spec positioning. In the end, we are not impressed with bullish fundamental prospects in gold and silver.

PALLADIUM / PLATINUM

While the palladium market last week showed a significant rally off the 1950 level and the market remains net spec and fund short, we see a negative demand environment keeping prices at the bottom of the last 3 months consolidation. Palladium positioning in the Commitments of Traders for the week ending October 18th showed Managed Money traders net sold 678 contracts which moved them from a net long to a net short position of 209 contracts. Non-Commercial & Non-Reportable traders were net short 1,444 contracts after increasing their already short position by 634 contracts. Obviously, the platinum market is viewed differently than palladium as the strong range up move at the end of last week suggest platinum it is poised to benefit from hope of less aggressive rate hikes. Platinum positioning in the Commitments of Traders for the week ending October 18th showed Managed Money traders were net long 3,228 contracts after increasing their already long position by 2,543 contracts. Non-Commercial & Non-Reportable traders added 3,043 contracts to their already long position and are now net long 11,612. Last week platinum ETF holdings declined by 10,728 ounces and are now 14% lower year-to-date. The path of least resistance is minimally pointing up, but we view risk and reward for fresh longs at current levels as very unattractive.

COPPER

In addition to spillover lift from initial weakness in the dollar and generally positive global equity market action this morning copper is lifted by an increase in Chinese January through September copper concentrate and ore imports and from a minimally positive Chinese GDP release. Furthermore, Chinese unwrought copper imports rose by 9.8%. It should also be noted that Bloomberg overnight rekindled concern for tight copper supplies inside of China by citing the comparatively low historical tonnage in bonded warehouses. Certainly, the tempering of US aggressive rate hike prospects, talk of reducing quarantine time for inbound Chinese travelers and hope for a Chinese infrastructure spending program provided copper with the basis for last week’s strong finish. However, the Chinese also implemented some additional lockdowns in Xi’an Providence and increased restrictions in Beijing thereby leaving the threat of economic headwinds hanging on copper prices. While LME copper warehouse stocks declined by roughly 10,000 tons last week, that bullish news was more than offset by a 25,820-tonne jump in Shanghai copper warehouse stocks on the week.

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