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Dollar Drives Gold & Silver


With a noted decline in the US dollar overnight the gold and silver markets have been provided with fresh oxygen and the bull camp has been given added confidence to extend yesterday’s recovery. Apparently, seeing the US Federal Reserve chairman leave a possibility of a follow-through rate hike in September on the table has been largely discounted by commodities and equity markets overnight but some headwinds are likely to remain in place through this morning’s likely European central bank rate hike. In fact, the trade is now pegging the Fed’s status as “live” meaning each Fed meeting will become a debate as opposed to a preference for continuing to raise rates toward more normal historical levels. Going forward, the key driving force of gold will remain the dollar which will likely be tested today as market sentiment temporarily embraces the idea the Fed must be compelled by data to raise rates further. It should be noted that the Fed Chairman indicated the US labor market remains strong and price pressures remain which will discourage some gold buyers.

Gold Bars and US Currency


Unfortunately for the bull camp, platinum ETF holdings yesterday saw a massive outflow of 28,059 ounces which is nearly a 1% decline of total world holdings in a single day. Investors were also negative toward palladium with an outflow yesterday of 1,432 ounces resulting in a single day decline in total global holdings of 0.3%. With the PGM markets clearly diverging negatively with the positive action in gold and silver yesterday, they appear to remain under a physical demand watch. However, recent production news has been supportive with large South African mining companies verifying lost output to power problems. Even demand issues favor the bull camp with recent news of a significant jump in Swiss exports. However, this week both platinum and palladium have seen noted outflows from ETF holdings suggesting both investors and physical consumers are not anxious to get long. Fortunately for the bull camp in palladium, the market has balanced its technical position with 4 weeks of sideways action as that has resulted in measured, slow grinding losses from this month’s highs. However, as indicated already, investors have migrated away from palladium ETF holdings and speculators are not easily enticed into the long side of futures from improving demand hope from current macro sentiment.


The chatter in the copper trade is the nearness to the end of the US rate hike cycle, but hovering in the backdrop are ideas that upcoming economic evidence will rekindle rate hike fears again. Overnight LME copper warehouse stocks increase by 1550 tons bringing LME copper warehouse stocks up from extremely tight levels and in turn discouraging tight supply buyers. While global macroeconomic sentiment has improved lately, the outlook for the Chinese economy remains suspicious with optimism difficult to spark and sustain. In fact, after 5 separate stimulus announcements the Chinese government continues to battle economic slowing fear among its citizens and the global trade. However, major trading firms remain bullish toward copper with some predictions calling for a 15% rally before the end of the year.


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