Written Commentary
COPPER
Last week, the copper market was presented with several instances of lower South American copper production and prices were unresponsive. Furthermore, LME copper warehouse stocks continue to decline notably and consistently but that potential support was offset by last week’s 6,325-tonne increase in weekly Shanghai copper warehouse stocks. While not as likely or as significant as in the platinum market, traders should monitor the situation in Russia as that could present a significant change in copper supply. However, the copper market is mostly sold-out with the most recent positioning report showing a net spec and fund short position.
GOLD / SILVER
While overnight outside market action is not definitively bearish for gold and silver, the bear camp has help from a stronger dollar, an uptick in US interest rates and signs of deflation in China with their CPI declining 0.2%. Given the pulse up in US interest rate expectations last week and the slide in gold and silver prices, the presence of positive US data and/or a return to risk on in equities will likely pressure both markets back toward recent consolidation low support levels. However, given the tighter relationship between the dollar and precious metal prices (relative to interest rate influences), the action in the dollar is likely to control over the interest rate influences. Therefore, establishing the direction of gold and silver daily will require determining which force is more predominant in the marketplace. We suspect the focus from the markets will be primarily associated with critical US scheduled data which is only 2nd tier data until Wednesday’s US CPI readings. Investment and physical demand signals are mixed for gold with China recently increasing its gold reserves in June from 67.27 million ounces to 67.95 million ounces. On the other hand, investors continue to exit gold ETF holdings at a brisk pace with a consecutive daily out flow pattern of 15 days. Last week gold ETF holdings declined by 326,933 ounces while silver holdings declined by 1.65 million ounces.
PLATINUM / PALLADIUM
While we think October platinum has found value at $900, the market was not bullishly inclined to embrace somewhat positive US vehicle sales last week and as indicated in gold and silver, it is difficult to determine the market’s reaction to today’s Chinese CPI readings. There is the potential for platinum to exhibit weakness if Chinese CPI is soft. Platinum traders should monitor the headlines for the status of the Russian leader’s control and/or any sign of negotiations for peace. On the other hand, if Putin decides to fight on thereby pushing the war well into the future, that could be supportive from the ongoing threat against supply. On the other hand, if there are signs of a peace deal or a regime change in Russia, the platinum market could fall through consolidation low support with a failure of $894.20. As we have been indicating for weeks, the palladium market seems to be on a different fundamental focus than platinum and appears to have “washed out” its technical condition with the net spec and fund long registering a record net short of 8,448 contracts in a market with only 14,889 contracts of open interest.
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