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Gold and Silver Track Positive

GOLD / SILVER

We are surprised gold and silver are tracking positive in the early going today with the dollar and treasury prices bordering on breakouts capable of sending precious metal prices down. Not surprisingly, gold, and silver ETF holdings saw outflows yesterday with silver ETF holdings showing another large (2.4 million ounce) exodus. According to a Reuters story this morning September global gold ETF holdings (which are down 1% year-to-date) saw the largest monthly outflow in nearly 20 months. While the LME continues to discuss a potential ban on Russian industrial metals, there have been discussions by other exchanges to isolate Russia with measures like origin identifying markings on precious metal bars and while limiting Russian gold flows might not be significant in the long run, that news would be short-term supportive. In today’s action, the US nonfarm payroll report should produce a wave of volatility and therefore key dollar index breakout points should be known.

Gold Bar Closeup

PALLADIUM / PLATINUM

With significant macroeconomic guidance on the direction of Fed policy next month due out this morning, the PGM markets are likely to track tightly with equities, inversely with the dollar and react aggressively if a fresh reassessment of physical PGM demand surfaces because of forecasts of softer US and Chinese growth. In our opinion, reports at the end of September of the possible branding or serial numbering of all bars acceptable for delivery have been given added credence by this week’s news acknowledging the LME was considering a complete ban on new Russian metals. On the other hand, given the magnitude of gains in palladium and platinum from last week’s lows, the markets are likely benefiting from the general risk on condition flowing from hope that the Fed is poised to pivot. Therefore, today’s US jobs data will likely provide a fresh assessment of upcoming Fed action. As in gold and silver, we see the risk of fresh longs in the PGM markets at current levels as very unattractive.

COPPER

With a modest risk off vibe flowing from global equities, a downward revision in Chinese economic growth forecast from Citi and ongoing gains in daily LME copper warehouse stocks, the bear camp holds an edge early on. From the supply-side of the equation, LME copper warehouse stocks yesterday increased for the 15th straight session and have reached the highest level since early June. In retrospect, a big range up reversal and poor close in December copper yesterday hints at an intermediate technical top. In fact, trading volume throughout the entire rally off last week’s low has declined in a possible sign that prices above $3.40 are viewed at expensive. Certainly, part of yesterday’s reversal was the result of a very strong recovery in the dollar and with the US nonfarm payroll report due out later this morning the dollar is likely to have a large but perhaps temporary impact on copper prices.

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