Gold Focused on Action in the Dollar

GOLD / SILVER

The dollar index eased back slightly overnight, and this lent some minor support to gold and silver. The index has been building consolidation support above 1.04, and that coupled with US economic data coming in strong enough to foster renewed fears of a jumbo rate hike next week and energy prices falling sharply suggests the environment for gold and silver tilts in favor of the bear camp. Another major bearish development surfaced late Monday from the largest single-day outflow from gold ETF holdings in 20 months. Total gold holdings reportedly declined by 13.7 tonnes or 442,002 ounces on, which was down 4.2% year to date. Holdings increased 9,053 ounces on Tuesday, which was only a minor offset. One would have thought that the signs that China is beginning to relax its Covid activity restrictions would be a more positive influence on gold, silver, and most commodity prices. Perhaps the prospect of improving commodity demand from China has been countervailed by the potential for new US and EU tariffs on Chinese steel and aluminum. The People’s Bank of China did report an increase in their gold holdings to 63.67 million tonnes at the end of November, up from 62.64 million the previous month and the first increase in three years. The World Gold Council has reported that central banks purchased nearly 400 tonnes in the third quarter. The gold market continues to be focused on action in the dollar, and that could result in a lack of price direction until the markets receive guidance from Friday’s PPI report.

PALLADIUM / PLATINUM

March palladium got a minor lift from a slightly weaker dollar overnight, but only after trading to a new five-day low. The lack of direction in the dollar, periodic weakness in platinum and a general risk off sentiment gives the edge to the bear camp, with near term targeting seen at the even number of $1,800. In the near term, the market lacks significant uncertainty in its supply and demand structure, leaving it pinned down to the 2022 lows. January platinum suffered another major chart failure on Tuesday and pressed lower overnight before recovering to slightly higher on the session. The market is vulnerable to further stop loss selling.

COPPER

Copper prices are under moderate pressure this morning despite news that Glencore’s 2023 production forecast came in below expectations and news of further Chinese Covid policy relaxation. November Chinese unwrought copper imports increased from October, but they were below year ago levels. Ore & concentrate imports came in above October and above a year ago. The market’s sideways trade despite extremely bullish predictions from the CEO of one of the largest commodity dealers in the world highlights a lack of broad-based bullish resolve in the copper trade. Glencore’s CEO predicted a doubling of copper prices because of an upcoming explosion in the world copper deficit. He expects the green energy revolution, environmental restrictions, and the long lead time for new projects will create the largest copper deficit in history. He predicted that copper demand for the next 25 years will be greater than the totality of civilization’s previous consumption. It should be noted that he has a vested interest in higher copper prices, is assuming a lack of interest in new projects, and more importantly that copper will retain a key role in the new green environment. On the other hands, talk of US and EU tariffs on Chinese steel and aluminum production (to force clean-air policies by China) could spark talk of a trade war.

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