Downward Bias in Gold & Silver

GOLD / SILVER

With promises of Chinese stimulus from the Chinese premier overnight gold and silver prices are showing little in the way of positive action. While gold, silver, platinum, and palladium appeared to see flight to quality lift yesterday from the uncertainty of the military turmoil in Russia, that potential has dissipated quickly. Certainly, if the coup attempt had gained traction and not ended so quickly, there might have been destabilization in Russia. However, it appears that Putin put down the push toward Moscow and will likely deal harshly with any Wagner Group officials remaining in the war zone. In retrospect, the dollar failed to sustain flight to quality buying interest from the Russian situation and seemed to lose further favor following a disappointing US Dallas Fed manufacturing index reading. In short, global economic uncertainty is in place, but is unlikely to be a consistent bullish catalyst for gold or silver. Furthermore, investment interest for gold and silver ETF instruments continues to wane with both gold and silver holdings lower now than at the beginning of this year. With the charts in gold and silver remaining bearish “risk off” sentiment throughout global equity markets and a bearish tone toward industrial commodities, we favor the downward bias in gold and silver.

PLATINUM / PALLADIUM

Like the gold and silver markets, the platinum market has showed almost no positive reaction to promises of stimulus from the Chinese premier overnight. However, expectations for a slight contraction in US durable goods later this morning could puncture initial risk on and turn a minimally positive early track back in favor of the bear camp. While the internal political situation in Russia appears to have calmed, traders should not discount the potential for a disruption of PGM supply flow if Russia were to show signs of Civil War. Furthermore, with Russia last year the 2nd largest producer of platinum a breakdown of the Putin government could lock in supply. On the other hand, in the Soviet collapse, insiders stole national assets and that could result in a flood of PGM supply. In fact, Russia is also the world’s largest producer of palladium producing 88 metric tonnes last year compared to only 80 metric tonnes from South Africa. Therefore, the situation in Russia is a possible flashpoint for platinum and palladium prices directly ahead. Unfortunately for the bull camp, global demand prospects for PGM markets are currently negative with economic disappointment from China ongoing and daily economic slowing evidence flowing from both the US and Europe. Unless a very large number of Russian citizens go to the streets to protest the war in Ukraine and there is pressure on Putin to resign, we think PGM markets will continue to slide.

COPPER

Given the Chinese premier promises overnight of a wave of support for the Chinese economy, the minimal gains in copper in the early action today indicate a slight prevailing edge remains for the bear camp. However, LME copper warehouse stocks have resumed a pattern of declines and chatter in the global copper market continues to fret over tightening supply. In fact, overnight an icon in the global mining business indicated the copper market is heading for a train wreck from severe supply tightness which he thinks “could” prompt copper to see prices rise by “tenfold!” However, such a lofty projection for prices is unlikely without a surging Chinese recovery and global copper exchange stocks falling near zero. From a fundamental perspective, the bear camp should also have an edge with fears of global slowing still permeating the marketplace. An indication of the bearish bias in the copper trade is the lack of a significant price reaction to the potential of copper supply disruption from the world’s 11th largest producer Russia.

Interested in more futures markets?  Explore our Market Dashboards here.