GOLD / SILVER
With a bit of risk on mentality, a softer US dollar and a dip in treasury yields, gold and silver have surprised the trade with a higher start to the trading week. However, the bias remains down in gold and silver with prices likely set to return to the late September lows ahead. On the other hand, in addition to lift from outside market action today, gold is reportedly gathering strength from a shift from discount to premium in India which could be a sign of pre-festival buying for auspicious dates later this month in India. Last week gold ETF holdings declined by 535,568 ounces while silver ETF holdings increased by 11.4 million ounces. While the Fed has made it very clear they are primarily focused on price pressures, the economic outlook in the US has generally held together which probably leads to broader consensus on the need for further sharp rate hikes. With the Chinese sticking with a zero Covid policy, Europe caught in war inspired inflation and the US Fed likely locked into 150 basis points before the end of the year we suspect gold will fall below the September low. In the silver market the September low is likely to fail quickly at $17.89 and an approach of the early September low down at $17.74 is likely.
PALLADIUM / PLATINUM
As in other physical commodity markets, last week’s developments pulled the rug out from underneath the PGM markets with surging interest rates likely to pull down auto sales and decrease consumption of auto catalyst materials. Fortunately for the bull camp, the net spec and fund positioning adjusted into the low last Friday produces a moderately oversold/moderately bearish condition in the market. Near term downside targeting is $1,963 in December palladium followed with a lower targeting of $1,943. While the platinum market held up better than the palladium market against big picture outside market negatives recently, the market is subject to wide fluctuations in global demand perceptions which leaves the bias pointing down. Platinum positioning in the Commitments of Traders for the week ending October 11th showed Managed Money traders went from a net short to a net long position of 685 contracts after net buying 2,807 contracts. Non-Commercial & Non-Reportable traders are net long 8,569 contracts after net buying 1,336 contracts.
As indicated in other coverage today, the Chinese central planning meeting appears to be focused on Taiwan and Covid instead of stimulating the economy and boosting infrastructure activity. However, given that 14% of China is thought to be in Covid lockdown we suspect the planning meeting will soon produce some pro-growth initiatives. On the other hand, last week Shanghai weekly copper stocks doubled in a single week in a negative demand signal. However, supplies inside China remain tight but to make that tightness a trigger for a rally in prices likely requires a formal stimulus package announcement from the Chinese leadership meeting. Granted, the weeklong holiday might have resulted in some physical supply backup in China but given surging interest rates global copper demand from housing and the auto sector should be expected to soften. Fortunately for the bull camp the copper market has a net spec and fund short positioning of near 16,000 contracts leaving the market somewhat sold-out.
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