Written Commentary
GOLD / SILVER
While the dollar neared a downside breakout point overnight of 99.26, without a new low for the move, this morning’s early gains in gold and silver could be difficult to extend. Gold and silver are likely undermined from a generally negative ongoing global view toward the Chinese economy with the Chinese government failing to hit the right notes on stimulus applications. In today’s action US retail sales will have an indirect impact on gold and silver prices, as the next US interest rate decision nears. Obviously, gold, and silver bulls need definitive indications from the Fed that the US rate hike cycle has ended with the July hike, or that the rate hike cycle could end after the next “small” hike. With gold and silver spending most of yesterday’s trade in negative territory, it is clear the bull camp lacks a convincing theme beyond the potential for significant declines in the dollar. In retrospect, the latest set of Chinese economic data points was discouraging to precious metal markets especially with China the largest gold consumer. Despite Russia ending the Black Sea grain shipment deal and the bombing of the Crimean bridge, the gold trade remains largely insensitive to the potential for flight to quality buying interest off the war. While Anglo Platinum indicated the potential for significant earnings losses due to reduced PGM output from ongoing serious South African power problems, the trade has not seen specific concerns of lost gold production from South Africa because of the unending power problems.
PLATINUM / PALLADIUM
Since we suspect a portion of yesterday’s gains in PGM prices came from a risk on vibe flowing from US equities, a generally positive global equity market track overnight leaves the bull camp confident again today. However, platinum ETF holdings declined by 1,866 ounces yesterday, with the year-to-date inflow at 7.2%. On the other hand, signs of reduced production from South Africa from power problems has returned to the headlines. Apparently, power disruptions and brownouts have caused South African producers to curtail some operations and utilize more expensive diesel generating power. Anglo American platinum sales and production readings for the first 6 months will be released on Thursday which should give the trade a better idea on the current impact of the South African electric problems on future PGM supply. While HSBC reduced their platinum average price forecast to $1,080 from $1,115, they indicated they remain bullish toward prices. In conclusion, higher gold prices, supply fresh concerns, a fresh upside breakout on the charts and the potential of long platinum short palladium spread interest, projects October platinum above $1,000 today.
COPPER
While copper did not make a lower low overnight, the market remains near yesterday’s sharp spike low, and the market continues to see disappointment flowing from China. Clear evidence of slack economic activity in China was documented from an overnight breakdown of Chinese export and import data which showed June copper concentrate imports falling to 2.1 million tons versus 2.5 million tons in May. In a potential negative development for Chinese copper demand views, Chinese readings on foreign direct investment for June were not released as scheduled overnight potentially because direct foreign investment has probably slowed precipitously given the anti-foreign business actions by the Chinese government. Furthermore, the latest sweep of Chinese economic data has pushed back timing for a definitive improvement in Chinese copper demand. In fact, the Chinese economy lost momentum in the 2nd quarter, and economist project a continuation of sluggishness in the 3rd quarter. Furthermore, with LME copper warehouse stocks increasing by 4,475 tonnes in the prior 3 sessions and Shanghai copper warehouse stocks at the end of last week rising by 10.8%, the supply condition favors the bear camp. However, recent Chinese industrial production readings produced talk that perhaps the manufacturing sector was leveling out.
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