GOLD / SILVER
While outside market conditions are conducive to the gold and silver rallies this morning, the gold market should draft additional lift from World Gold Council indications that central banks purchased a record amount of gold (399 tons) in the 3rd quarter 2022. However, in a strange development the World Gold Council has yet to announce the source of a substantial amount of “unreported buying”. It is important to note that despite a decline of 8% in gold ETF holdings in the 3rd quarter year-to-date gold demand overall has returned to “pre-pandemic levels”. According to the WGC world gold demand reached 1,181 tons in the 3rd quarter and posted a 28% gain versus the 2021 quarter. While mining production in the 3rd quarter increased, recycled gold fell by 6% and hedging dropped off by nearly 20%. Yesterday gold ETF holdings declined by 60,953 ounces pushing the year-to-date decline in holdings to 2.8%. In another minor negative overnight Indian gold jewelry retailers are reporting lackluster interest and in significant longer-term development Indian consumers are reportedly shifting their gold holdings into ETF instruments over physical holdings. Fortunately for the bull camp, the net spec and fund long in gold remains near 3-year lows and the jump in central bank purchases could help establish strong fundamental value on the charts around $1,625.
PALLADIUM / PLATINUM
With a major failure range down extension in palladium yesterday, the fear of softening global demand has likely prompted speculative selling in Palladium. In retrospect, the massive divergence between palladium and platinum over the last 30 days might be a sign that substitution from high-cost palladium to lower cost platinum is finally being anticipated by the trade. Keep in mind that earlier this year, China bought significant quantities of PGM supply from Russia and China probably holds significant buffer stocks. To determine chart support in December palladium after yesterday’s major failure requires weekly charts which produce initial support today at $1,770. Yesterday palladium ETF holdings increased by 2441 ounces but remain down 17% year-to-date. Like the palladium market, platinum came under very aggressive liquidation pressure off surging demand fear following news of a worsening of the daily Chinese infection rate. However, unlike palladium, the platinum market held a relatively large net spec and fund long positioning of 15,000 contracts, thereby leaving the potential for further declines to start the month of November.
Apparently, global copper prices overnight bounced off improved global demand views but another large (6,700 tons) daily outflow from LME warehouse stocks reiterates the tightening supply condition in the copper trade. In fact, LME copper warehouse stocks have declined by 36,525 tons in the past 2 weeks and have declined in 9 of the last 11 trading sessions. Unfortunately for the bull camp, the Covid situation in China continues to worsen and October Caixin PMI readings for October highlighted a slowing Chinese economy. However, according to the most recent Chinese customs data, Chinese imports of copper scrap in September were up by nearly 8% over August and reached the highest level since April. Countervailing increased Chinese interest in Chinese scrap copper in September was a decline of 16.6% in the import of copper anode. Rounding out the Chinese September customs report on the copper sector is an increase of 25.6% in the import of unwrought copper. While we think soft demand fears will control over tight supply news, extreme supply tightness remains in place in China and that could offset selling interest off the Covid breakouts in China.
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