GOLD / SILVER
With a very overbought condition from the January low to high rally of $120, the gold market has likely seen a combination of fundamental and technical selling overnight. While many markets remain upbeat toward a Chinese recovery, the gold and silver markets have not bought into that argument yet. Unfortunately for the bull camp, the World Gold Council overnight pointed out Indian gold demand in 2022 dropped by 2.9%, with a total gold demand reading of 774 tons. Given the decline in Indian gold demand last year a 27% decline in Indian gold imports last year was at least partially justified by high prices, gold import duties and a very weak rupee Furthermore, Indian gold buyers have been extremely sensitive to price recently, and it will be interesting to see when Indian buyers surface especially with prices into the low this morning already $50 below the high last week. While we eventually see the dollar resuming the downtrend in place since last September, looming rate hike fears this week are likely to provide an ongoing lift for the dollar. Even though we doubt gold will arrest the unfolding corrective slide in the coming 36 hours, the market overnight initially respected significant uptrend channel support at $1,917.50 and therefore that level becomes a pivot point today. In the end, a series of central bank rate hikes ahead should leave the bear camp in control with the next critical support point in gold at $1911.90. Unfortunately for the bull camp in silver, the charts have broken down overnight and a slide below $23.00 looms in the near term. Even with better-than-expected Chinese PMI data overnight, a massive inflow to Silver ETF holdings last week of 23.8 million ounces and favorable GDP readings from Europe have failed to cushion the market and therefore the bear camp has control.
PALLADIUM / PLATINUM
With a very sharp range down failure in platinum temporarily violating the $1000 level, the market is obviously not buying into the optimistic Chinese growth story. Not surprisingly, the platinum market has also not embraced the potential for a strong rebound in platinum investment through ETF instruments, as yesterday total platinum ETF holdings jumped by 32,499 ounces. The sharp inflow to ETF holdings yesterday was preceded by what could be a developing pattern of investment from last week. With the subject of substitution of high-priced palladium with cheaper platinum supply likely the source of the platinum rally in the 2nd half of 2022, we suspect declines in platinum this week have been the result of long profit-taking and lingering concerns for auto catalyst demand in a global rush to electric vehicles. Furthermore, a brewing price war for electric vehicles has surfaced which could raise electric vehicle sales beyond current forecasts. We have very little positive to say about the palladium market with the attempt to bounce yesterday likely sparking fresh speculative selling interest ahead. In our mind, the only definitive positive for palladium is the presence of a net spec and fund short from last week’s COT report.
Apparently, optimism from the Chinese reopening (Chinese PMI readings overnight were better than expected) has been tossed aside by the copper trade. In fact, copper prices this morning traded sharply lower despite warnings of a shutdown of a MMG Ltd owned Las Bambas copper production in Peru because of local protests. The copper trade has also discounted overnight news from the copper mining giant MMG Ltd of a 10% decline in total copper production in 2022 compared to 2021. When it rains it pours for the bull camp with Bloomberg overnight reporting Chinese December copper output increased by 3.6% on a year-over-year basis. Obviously, the copper market damaged its charts with the extension of the recent erosive pattern, leaving the next downside target at $4.1105. While the most recent COT positioning report in copper showed the largest net spec and fund long since April 2022, the market from the report has already declined $0.13 thereby potentially reducing the number of weak handed longs in the market. Unfortunately for the bull camp, a Reuters poll yesterday predicted a 2023 world refined copper surplus of 165,000 tonnes with a 2024 surplus forecast of 215,000 metric tonnes.
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