Written Commentary
GOLD / SILVER
While early action today in gold and silver could produce a narrow trade, the bear camp is somewhat emboldened by comments from a former vice chair of the Fed who predicted further rate hikes this cycle. The bear camp should also be emboldened by 6 straight outflows from gold and silver ETF holdings. In a minimally supportive demand development (more psychological than physical) Chinese gold reserves at the end of May were 67.27 million ounces compared to 66.76 million ounces at the end of April. On the bear side of the equation are the ongoing pattern of outflows from gold and silver ETF holdings, the recent rate hike by the Reserve Bank of Australia and definitively hawkish dialogue from the ECB regarding the need for several additional rate hikes to rein in inflation is a pile of negative news. We expect economic news flow from the US will be rather benign over the coming two sessions with the latest flow of data from the euro zone heavily favoring a slowing economy. Therefore, gold and silver are likely to remain under pressure from slackening demand expectations and very little information from the supply side of the equation.
PLATINUM / PALLADIUM
The early strength (a nine-day high) in platinum in the face of discouraging Chinese trade data is impressive especially given the negative impact of the Chinese news on many other physical commodities. Yesterday platinum ETF holdings added a scant 523 ounces and are 9.8% higher year-to-date. In retrospect, with the July platinum contract finding some value at the $1,000 per ounce level over the 5 prior trading sessions and talk of a dramatic boost in platinum demand for virtual reality glasses, the bull camp has a modest case. Unlike gold and silver, Platinum ETF holdings have not encountered outflows like gold and silver and given that inflows to platinum ETF holdings last month were much stronger than in gold and silver investor sentiment toward platinum looks to remain slightly supportive for prices. Fortunately for the bull camp in the palladium market, the rally off last week’s low has been very modest and the market has already given back a noted portion of that rally. Furthermore, the aggressive washout below $1,400 resulted in a significant decline in trading volume, which could be a sign that sellers were unwilling to press prices below that level.
COPPER
The copper market has charged through a partial global risk off environment in commodities this morning from disappointing Chinese import and export data. However, China January through May copper concentrates and copper ore imports were 8.8% above year ago levels which was a fresh record. On the other hand, Chinese May copper imports of 444,010 tons was a drop of 4.6% versus year ago levels. Therefore, the copper market has not only discounted broad threats against physical demand present in other commodity markets, but it has also discounted a disappointing May Chinese copper import tally. Perhaps the trade continues to “hope” for broader Chinese economic stimulus efforts which might be seen following today’s disappointing import and export data.
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