Bears Control Platinum Prices

PLATINUM / PALLADIUM

As indicated throughout gold and silver coverage today, slowing in China bordering on deflation, some fear of a Chinese financial contagion, a strengthening dollar, rising US interest rates and a significant reduction of platinum ETF holdings yesterday of 10,977 ounces gives the bear camp firm control over platinum prices. However, concerns of lost production from South Africa remain in the news with some mining company shares under pressure because of those concerns. Certainly, a reduction in several Chinese rates provides a Band-Aid to the economic injury to Chinese economic sentiment but given building economic anxiety, it is possible that the Chinese government has missed the opportunity to avert a mini meltdown. With the platinum market forging an impressive short covering bounce last week and correcting the oversold technical condition in the process, macroeconomic sentiment eroding and the potential for spillover weakness from precious metals, we see near term downside targeting in October platinum of $891. With the $146 rally in palladium last week, a portion of the record spec and fund short might have exited and in turn leveled the extreme technical condition somewhat. However, the bull camp has little in the way of solid fundamental forces to support prices.

GOLD / SILVER

As expected, Chinese economic data from industrial production and retail sales reconfirmed slowing and in turn fostered contagion fears which typically sends a wave of selling through physical commodities like gold and silver. Fortunately for the bull camp, the Peoples Bank of China moved to reduce a series of interest rates to tamp down economic anxiety. Not surprisingly, both gold and silver ETF holdings declined yesterday resulting in year-to-date net sales of 3.1 million ounces of gold and net sales of silver year-to-date of 20.4 million ounces. An indirect negative for gold and most physical commodities is also seen from a record Tin discount which is likely the result of LME inventories reaching multiyear highs. At least in the early going today, weaker treasury prices, a stronger dollar and weakness in oil prices, should leave precious metals under a constant drum of outside market selling pressure. In the end, the trade has not whipped up concerns of a financial contagion in China yet, but with deflation fears in the country rising, all global physical commodities remain under a liquidation watch.

COPPER

Clearly, the move by the Chinese central bank to reduce interest rates has failed to offset disappointing Chinese industrial production and retail sales readings. Even though Chinese equity markets did not show significant anxiety from the disappointing data, trade whispers of a Chinese contagion leave the prospect of aggressive copper selling in place today. Furthermore, LME copper warehouse stocks continue to rise consistently with a notable increase yesterday of 4,775 tons. As indicated already, signs of Chinese deflationary concerns are registering in other industrial commodities like Tin prices which have reached significant discounts and are also experiencing significant expansion of exchange inventories. Ordinarily news of a potential strike at a Kazakh copper mining company (the world’s 20th largest copper concentrate producer according to Bloomberg) would be supportive of prices but in the current condition a small supply threat does not offset large demand concerns.

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