It is not surprising to see the copper market ranging sharply lower this morning given a negative shift in overall global sentiment, a surge in US interest rates, a very large daily inflow to LME copper warehouse stocks and nearly a week without the Chinese government offering up assistance to its economy. As if the negative news were not enough ammunition for the bear camp, yesterday the International Copper Study Group reduced its global copper market deficit to 19,000 metric tons in July from a larger 72,000 metric ton deficit in June. Perhaps more importantly adjusting the deficit readings for the changes in Chinese warehouse inventories, the deficit in July was 29,000 metric tons compared to the larger 102,000 metric ton estimate in June. Obviously, the inflows to LME copper warehouse stocks are a very significant negative especially with LME stocks nearing 200% gains since June.
GOLD / SILVER
Clearly, gold, silver, platinum, and most physical commodities are experiencing “sell the fact” pressure today from the pause by the US Fed, as it was accompanied by stiff inflation fighting promises. However, the most damaging development is the aggressive recovery off a new low for the move yesterday and a new high for the move upside breakout this morning in the dollar. In fact, the aggressive stance of the US Fed in its insistence on achieving its 2% inflation target is likely to carry the dollar higher through the expected rate hike from the Bank of England this morning. Therefore gold, silver, platinum, and palladium are under liquidation watch. Not surprisingly, investors continue to flee gold ETF holdings with a 14th straight day of outflows with the outflow yesterday moderately large and the equivalent of 0.1% of total global holdings. Silver ETF holdings also declined by a more modest amount. Yet another negative for the precious metal markets is the upside breakout in US treasury yields with 2-year treasury notes reaching a 17 year high. We continue to see the gold and silver markets as markets without a definitive fundamental driving force. With technical damage, renewed bearish currency influences and surging interest rates the large washout in gold and silver prices this morning is likely to extend.
PLATINUM / PALLADIUM
As in gold and silver markets the platinum market is paying the price of its rally over the last 2 weeks, which we think was forged on very suspect fundamentals. While not a significant negative platinum ETF holdings saw an outflow yesterday and the outside market environment has shifted against all precious metal-based investments. In fact, the lack of a definitive rally in platinum yesterday following a large inflow to platinum ETF instruments, likely indicates the platinum market reached a value/overbought zone at this week’s highs or was technically overbought at the $950 level.
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