Written Commentary
COPPER
Adding into the generally bearish environment in copper is an extension of the pattern of daily inflows to LME copper warehouse stocks with a 2000-ton in movement overnight. However, the focus of the copper trade will be split between CPI and initial claims today and therefore a measure of volatility is likely. As indicated in precious metal market coverage today, the trade is already heavily anticipating the US Fed to pause next month and therefore it could be difficult for copper to benefit from as expected CPI. In retrospect, seeing Peruvian copper production jump by 21% earlier this week is a major blow to the bull camp as demand views remain negative and the idea of significant ongoing global tightness is being eroded by the influx of supply to LME exchange warehouses.
GOLD / SILVER
With gold testing yesterday’s low in the early going despite a weak track in the dollar, the path of least resistance remains down. However, the trade is likely to mark time on the charts until the release of US CPI, with inflation capable of sparking a chain reaction of movement in treasury yields, the dollar and eventually precious metal and commodity prices. Not surprisingly, investors remain cool toward gold ETF holdings which were reduced for the 13th straight session yesterday. While silver ETF holdings managed to break a trend of outflows with an inflow yesterday, gold, and silver ETF holdings year-to-date are down 3.3% and 2.8% respectively. Evidence of the downward bias in gold and silver was on display yesterday as a strong recovery in energy prices, weakness in the dollar and slightly lower US treasury yields all failed to provide support. Furthermore, Gold and silver should be disappointed with the lack of bullish sensitivity early this week in the wake of very significant flight to quality type of developments from the latest warning of downgrades for US banks, the prospect of further US government credit rating cuts and reports of deflation unfolding in China. With the trade presented with an extremely critical monthly US consumer price index reading this morning traders should not underestimate the importance of the reading as today’s information will be a key ingredient in the Fed’s rate decision next month. Unfortunately for the bull camp in gold and silver, the trade is already heavily vested in a September pause by the US Fed with the latest CME Fed watch tool pegging the odds of a pause at 86.5%. Therefore, there might be little for the bull camp to gain by today’s CPI report unless it is patently “deflationary” with an actual contraction.
PLATINUM / PALLADIUM
Like the gold market, the platinum market has returned to what has been critical consolidation support around the $900 level and despite the lack of a fresh lower low for the move early today, the charts remain bearish. On the other hand, platinum ETF holdings saw an inflow yesterday of 8,341 ounces and stochastic indicators might register a buy today on further weakness. Short-term technical indicators remain in sell mode in platinum but given a $53 slide since the last COT report measured, the net spec and fund long might be nearing the lowest level since last October. Like the platinum market, the palladium market is heavily invested in the bear case with the spec and fund short position likely surpassing 10,000 contracts.
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