GOLD / SILVER
While the dollar index is trading higher early this morning that action does not appear to be the primary force behind the sharp slide in gold prices. In fact, red hot inflation readings from the UK (matching a 40 year high) and talk of aggressive rate hikes from several central bankers has flooded the headlines and that has knocked gold sharply lower. Reports are the ECB plans to implement another jumbo hike next week, the Minneapolis Fed Pres. indicated the benchmark policy rate in the US will have to rise above 4.75% and the BOE has indicated they will begin selling bonds on November 1st. Therefore, surging interest rates are likely to dominate gold and silver with the dollar adding into the selling environment. Even though the markets are expecting Indian festival-inspired gold buying over the coming 2 weeks, it could take a return to the September lows, along with a jump in the value of the Indian currency for Indian buying to have a material upside impact on gold prices. In conclusion, we are bearish toward gold, but acknowledge an already heavily liquidated net spec and fund long position which could bring about an exhaustion low later this week.
PALLADIUM / PLATINUM
While the palladium market is building a consolidation pattern just above the $2,000 level, bearish control has not dissipated especially with global interest rates surging. Fortunately for the bull camp, the net spec and fund position in palladium is already net short which could reduce aggressive stop loss selling from an extension of negative big picture commodity factors. Unreliable support in December palladium is seen at $1,999.30 with a very key failure taking place on a trade below $1,990. Unlike the palladium market, the platinum market is fresh off a compacted low to high rally of $70 and the most recent positioning report showed a material net spec and fund long position of 8,569 contracts which should leave the market vulnerable to stop loss selling. Close-in resistance in January platinum today is $900.80 with a downside projection into Friday of $875.60.
With a range down breakout and a trade to the lowest level since September 29th it is clear the copper market is under pressure from deteriorating demand expectations brought on by surging global interest rates. Cushioning the market against a quick return to the September low down at $3.2430 is a large overnight decline in LME copper warehouse stocks of 4,825 tons and news that Antofagasta saw its first 9 months production decline. However, Antofagasta saw higher 3rd quarter production and expects production next year to expand. In addition to a record “jump” in Shanghai copper exchange supply available for delivery from earlier in the week, the market remains concerned about slumping Chinese demand in the wake of an official delay in the release of the Chinese GDP reading. With the Chinese GDP report delayed until after a very key Chinese leadership planning meeting, the copper trade has jumped to the conclusion that the report was very soft, and leadership did not want that news to undermine sentiment during the widely followed 5-year planning meeting.
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