With copper prices early today falling back sharply in the face of optimistic 2023 Chinese growth targets (as high as 6%) the bull camp has temporarily lost its edge. However, reports of improvement in the January and February Chinese job markets and a sharp jump in Hong Kong retail sales provides some fresh optimism and should increase the potential for May copper to respect even number prices of $4.00 on the charts. While reports overnight indicate a portion of the trade is fearful of this weekend’s People’s Congress in China, we think those views are misguided with the potential for stimulus plans emerging from the meeting. On the other hand, news of a potential agreement to restart production from a Panamanian copper mine (closed because of government conflict), recent gains in LME copper warehouse stocks and ideas that copper supply inside China continues to build clearly prompts profit-taking selling and fresh speculative selling.
GOLD / SILVER
With the dollar extending yesterday’s late rebound and ECB officials indicating more rate hikes are possible and Dutch officials taking note of significant food price inflation the bias in gold and silver has shifted down after 2 days of upward action. In fact, according to reports, the US Federal Reserve is discussing the potential for continued rate hikes beyond January, as opposed to more significant near-term rate hikes which should entrench the rate hike story on the front page of the marketplace. The divergence between gold and silver yesterday reconfirms gold is almost exclusively tracking action in the dollar, while the silver market is at least partially focused on classic physical commodity market demand fundamentals. However, gold did manage to hold up yesterday in the face of fresh inflation data and against dialogue from the Fed indicating that Fed funds will likely have to rise above 5.0%. On the other hand, favorable Chinese economic data should help to reinforce current expectations of an economy regaining momentum following the removal of activity restrictions. While some traders might suggest improved Chinese economic activity is a bigger benefit to base metal markets than to precious metal markets, China remains the world’s largest gold consumer and the Chinese central bank has seemingly shifted into a pattern of adding to reserves which have been partially confirmed by the IMF. Another potential negative force for gold and silver prices today is hot consumer price index readings from Italy and the Euro zone with Tokyo price index readings scheduled for Friday morning expected to be hot. While we will not argue against additional upside action in gold and silver ahead, the bias this morning has clearly shifted back in favor of the bear camp.
PALLADIUM / PLATINUM
While we suspect part of the retrenchment in platinum prices this morning is the result of the overbought condition from 3 days of aggressive gains of $70 per ounce, initial weakness this morning has taken place despite positive fundamental supply and demand news. While the ebb and flow of Chinese economic activity has not been a primary driving force for PGM markets over the last several months, Chinese scheduled data this week has emboldened buyers and discouraged sellers thereby providing fundamental underpin for recent gains. Action on the palladium charts continues to highlight the market’s relative weakness compared to platinum. Obviously, widespread belief of substitution of high-priced palladium with cheaper platinum for auto catalyst production is a major element keeping palladium on the defensive this.
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