GOLD / SILVER
With Italy surprising the markets with a 40% windfall profits tax on banks, Moody’s downgrading several small to midsized US bank ratings and signs of significant slowing from Chinese trade data, gold and silver are not sensitive to flight to quality developments. Other minimally bearish developments include Turkey placing a 20% levy on some forms of gold imports and news that gold ETF holdings yesterday fell for the 11th straight day. Obviously, the much weaker than expected Chinese import and export data undermines physical and investment demand hope for gold and silver which will also be facing slightly negative spillover from strength in the US dollar. Apparently seeing the Chinese government warn economists against the use of deflation to describe the status of the economy was a preemptive effort to diffuse disconcerting economic data fears. Furthermore, a slowing Chinese economy is negative to most if not all physical commodities. With December gold testing downtrend channel resistance at $1,980.80 and failing yesterday, the chart bias remains down. Fortunately for the bull camp, a stronger dollar yesterday was offset by a slight softening of US interest rates and a risk on vibe toward equities with support from lower US rates extending into the action today. However, the markets appeared to embrace hawkish views from the Fed’s Bowman over the dovish commentary from the Fed’s Williams, indicating the markets preference for the bear case. While the Fed commentary yesterday seemed conflicting, the Fed’s Bowman was referring to near term rate hikes while the Fed’s Williams was referring to long-term Fed rate cuts.
PLATINUM / PALLADIUM
Even though the October platinum contract attempted to reverse course and track higher yesterday, given a significant 8,481-ounce outflow from platinum ETF holdings yesterday and definitively negative Chinese trade activity, the path of least resistance remains down. However, we do not see platinum or palladium overly responsive to anything but significant macroeconomic news with traders failing to benefit from a pattern of global risk on equity market gains and favorable US auto sales readings last week. In fact, yesterday platinum prices virtually ignored news from Impala Platinum of a production “miss” because of power problems. However, Impala Platinum production tally increased by 2% versus previous production forecasts leaving the physical supply news in platinum bearish. Like the platinum market, the palladium market has not responded to bullish developments with a fresh record spec and fund short last week failing to prompt fresh buying. However, with the net spec and fund short in palladium approaching 10,000 contracts and open interest at only 19,127 contracts, palladium could at any time forge an explosive move off short covering. Unfortunately for the bull camp the palladium market lacks a bullish fundamental theme capable of shifting market sentiment.
While the headline readings regarding Chinese copper sector imports were offsetting, the copper market saw the totality of Chinese trade data overnight as bearish. Certainly, Chinese January through July unwrought copper imports declining by 10.7% sets a very negative tone, but that news should have been partially countervailed by a January through July Chinese copper concentrate/ores import gain of 7.4%. However overall Chinese import and export data depicts a slow economy which injures copper demand prospects and serves to lift the US dollar. In a fresh bullish supply development, Chile July copper production fell by 2.8% from year earlier readings with July copper exports also down 13.5%. Exports of copper from Chile are very significant to Chile with copper representing 45.4% of total Chilean exports last month! According to the International Copper Study Group, the January through May global copper market presented a surplus of 287,000 tonnes which certainly makes Chinese demand patterns extremely concerning for the bull camp.
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