As in other physical commodity markets a shift back into risk on throughout the marketplace this morning has provided a “bounce” in copper prices. While not a significant shift development, it should be noted that LME copper warehouse stocks have seemingly reversed a pattern of daily outflows with some traders suggesting that is a sign of softening European demand. Several forces look to extend the downside extension in copper from last week. Obviously, growing fear of recession, expanding Chinese activity restrictions and a stronger dollar provides the bear camp with significant ammunition. However, slightly dovish comments overnight from the US Cleveland Fed and Chinese attempts to stabilize lending to real estate developers and construction firms should reduce bear confidence. Fortunately for the bull camp, the copper market, since the last COT positioning report into the low yesterday, declined by $0.25 which should bring down the already modest net spec and fund long positioning. On the other hand, the copper market since April has maintained significant net spec and fund short positioning, with the largest net short this year almost 30,000 contracts.
GOLD / SILVER
At least to start today gold and silver have been “saved” by a moderate setback in the US dollar. In another minimally supportive development, gold ETF holdings yesterday increased by 153,789 ounces for the largest single day ETF inflow since June 17th. While the path of least resistance has shifted down in gold, prices are showing some strength early this morning, but that strength is likely to be temporary. In other supportive news, the IMF announced Kazakhstan, Turkey, UAE, India, and Cambodian central banks increased their gold holdings. Relatively speaking the silver market held up to the big picture broad-based physical commodity market selling wave significantly better than gold! Clearly, the silver trade is cheered by recent Silver Institute projections that global demand for silver will rise 16% this year and surpass 1.2 billion ounces! The Silver Institute also predicted the market will have the largest deficit in decades potentially reaching 194 million ounces! The silver deficit in 2021 was 48 million ounces, with total silver ETF holdings at the end of last week at a very significant 754 million ounces. However, silver ETF holdings have continued to decline, with holdings at the end of last week 15% lower year-to-date. In the near term, expectations for strong silver demand and a large jump in the silver deficit are unlikely to be embraced by traders. Therefore, both gold and silver look to remain vulnerable to further dollar strength and might not be cushioned by declines in US treasury yields. From a technical perspective, the gold market remains vulnerable to spec and fund stop loss selling with the latest COT positioning report producing the longest spec positioning since early August! Key support in February gold today is at the 100-day moving average of $1,736.25 with downside targeting for later this week seen at $1,720.
PALLADIUM / PLATINUM
In addition to an improvement in overall market sentiment from yesterday, the PGM markets are finding support from a World Platinum Investment Council forecast predicting platinum falling into deficit next year. Apparently, the WPIC expects increased auto catalyst demand to more than offset sluggish ETF/investment interest to produce a deficit of 303,000 ounces. Perhaps just as importantly, the World Platinum Investment Council indicated that mining supply will continue to be heavily restricted. If there is a world platinum market deficit next year that will be the first deficit since 2020. The WPIC expects auto sector demand to increase by 11%, jewelry purchases to remain steady, industrial demand jumping by 10%, with ETF liquidations likely to reach 275,000 ounces. The Council also expects the total platinum supply to increase by only 2%. Even though the platinum market since the COT report has declined by $52, the net spec and fund long last week reached the highest level since early March and that could foster another wave of stop loss selling if chart support points are violated. While the PGM markets did not see significant gains on initial talk of restricting Russian metal supply flow to exchange warehouses several weeks ago, seeing the LME allow Russian metal shipments is a negative to PGM prices.
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