GOLD / SILVER
Gold traders are coming to grips with the idea that the Fed will continue to push rates higher into 2023 and that gold could resume its downtrend. As we suspected, the market sold off right after the FOMC meeting results were released yesterday but then reversed to trade higher on the day on a “buy the fact” rally. The market has been choppy since, as the trade appears to be torn between the market’s oversold technical condition and a more hawkish sounding Fed. The Fed Funds rate was increased 75 basis points as expected, and in his comments, Chair Powell suggested rates could go up another 125 basis points over the final two meetings of 2022. Powell indicated the Fed was strongly resolved to bring inflation back to the 2% level. There has been talk this week that the Fed could overshoot on its hikes and spark a deeper recession than it wants to. This could support gold, but the trade would have to be convinced that the Fed had overtightened and and/or it was failing in its attempt to quell inflation, making gold the safe haven of choice. In the meantime, we would expect the outlook for more rate increases to put pressure on gold. Silver holdings increased by 2.929 million ounces for a fourth straight day of increases.
PALLADIUM / PLATINUM
October platinum reversed course on Wednesday after rallying $147 (18%) off its contract lows of September 1. The three-week rally was impressive, but it was primarily accomplished on short covering, as open interest fell precipitously during that time. The market reached an overbought status into Wednesday’s high, and momentum indicators crossed negative from high levels, suggesting a bigger correction is in order. December palladium also closed lower but spent the session inside Tuesday’s range. As if to underscore an uncertain outlook for PGM demand, Goldman Sachs cut its 2023 growth forecast for China on ideas Beijing will stick to its Covid Zero policies through at least the first quarter of 2023.
After posting heavy losses on Wednesday, December copper recovered overnight. The market was supported by report from the International Copper Study Group that there was a 30,000-tonne deficit in global refined copper supply in July, bringing the year-to-date deficit to 126,000. Wednesday’s sharp selloff in US equity markets led to knock-on selling in Asia overnight, but European and US markets have found their footing, and this has lent support to copper this morning. LME copper stocks had a fourth large increase in a row today, indicating slack demand. The Russian military mobilization has increased the chances for energy shortages in Europe this winter, which could reduce that region’s copper demand.
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