Written Commentary
PALLADIUM / PLATINUM
Like the silver market, the platinum market today will have a potential major junction with the trade potentially forced to decide if platinum is a financial instrument or an industrial commodity in the wake of US CPI. In our opinion, the best track for the bull camp in platinum is for inflation to moderate, inspiring a risk on environment which in turn should boost physical demand hopes for platinum. Furthermore, with the Chicago Fed President indicating the Fed will consider financial market stresses in their upcoming interest rate decisions, the prospects of a pause by the Fed next month should help underpin July platinum above uptrend channel support at $979.30 today. With a series of lower highs and lower lows stretching back to the final days of March, the charts favor the bear camp in the palladium trade today.
GOLD / SILVER
It goes without saying that today will be an extremely critical session for gold and silver, with the markets anticipating “confirmation” on the direction of US inflation. Despite serious chart damage on Monday, the June gold contract respected the $2,000 level yesterday, developing a possible value zone on the charts especially with this morning’s upward probe. However, very soft Chinese inflation readings from early Tuesday have prompted speculation that US inflation later today will also be soft. According to an article on Bloomberg, the gold market might be set to benefit from an economic theory known as Gibson’s Paradox which notes that real interest rates and gold move inversely with indications that every percentage change in real Fed funds rates projects gold prices to rally 8% over the ensuing 12 months. However, given today’s ultra critical US CPI report, we suspect a lot of economic relationships will be temporarily delinked, but it is also possible that a trend of diversifying away from US treasuries will result in some flows toward gold. While the silver market might fall in sync with gold today (especially if gold posts a large rally), a soft US inflation reading might sink gold and lift silver. With the gold market benefiting from strength in gold mining shares yesterday, the bull view toward gold related items broadened yesterday.
COPPER
While big picture macroeconomic influences are likely to dominate the action in copper prices today, the bull camp should see support from a noted single day outflow from LME copper warehouse stocks of 5475 tons overnight. In a potential supportive Chinese demand development for raw copper ore, copper cathode output in China last month increase by 14% over previous year’s figures reportedly because of new capacity and widely available feedstocks. Depending on your economic analysis, this week’s sharp contraction in Chinese inflation could be seen as a positive or a negative to upcoming copper prices. However, the copper trade appears to have interpreted soft Chinese inflation readings as a potential precursor to Chinese stimulus efforts instead of a sign that the Chinese economy continues to suffer the impact of sustained lockdowns. On the other hand, Chinese consumption of oil remains strong and if the Chinese economy is struggling and inflation is moderating, the Chinese government could be quick to provide economic stimulus. We suspect that the focus of the copper market today will be on external big picture macroeconomic developments with an obvious bias toward the demand side of the equation.
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