Written Commentary
GOLD & SILVER
With the dollar index aggressively recoiling from a 20 year high and action in the dollar still “the primary driver of gold”, the aggressive short covering rally in gold and silver yesterday was not surprising. However, the source of the dollar rally does not appear to be the result of sustained change in fundamentals and instead is likely the result of an attempt by the Bank of England to prevent further slowing from inflation headwinds. On the other hand, the sudden 180-degree shift in Bank of England policy action might be a sign that at least one major central bank is poised to pause their aggressive rate hike efforts. Therefore, gold and silver were justified in noted “relief rallies yesterday”, but there does not appear to be enough evidence to suggest the bear trend in precious metals has come to an end.
PALLADIUM & PLATINUM
With the palladium market recently holding up better than gold, silver, and platinum, the bullish reaction to the sudden and surprising Bank of England intervention yesterday was not surprising. However, we see very little evidence of improvement in investment and or physical/industrial demand for palladium in the near term and without fresh and enforceable Russian PGM embargo measures, supply is unlikely to tighten more than demand will decline. Just as was seen in most markets yesterday, the platinum market benefited from a sudden and unexpected improvement in macroeconomic sentiment following Bank of England intervention.
COPPER
While market sentiment from China has shifted positive overnight from renewed attention to tight Shanghai copper exchange warehouse supply and from a measure of improved demand talk, the copper market has spent most of the early trade today below yesterday’s close. In fact, a portion of the tight Shanghai copper warehouse stocks story is offset by an extending pattern of daily inflows to LME copper warehouse stocks. Apparently, portions of the copper market expect surging demand from Chinese infrastructure projects and from the push toward renewables as a offset to the disaster unfolding in the Chinese commercial property market. As in many other physical commodities markets, the bounce in copper yesterday is likely the result of a temporary improvement in economic psychology.
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