GOLD / SILVER
With a fresh lower low for the move, the path of least resistance looks to remain down with today’s US PPI report likely to result in the same price reaction as was seen following the US CPI report yesterday. Certainly, seeing ETFs push money into gold is a positive but we do not detect a full shift in market sentiment in favor of the bull camp. However, gold and silver might benefit from a generally weaker dollar which partially offsets negative spillover from overnight declines in global equities. On the other hand, the latest litany of Federal Reserve dialogue favors the bear with the extremely high probability of a pause in rates by the Fed next month called into question by Fed members suggesting inflation remains a threat. Even though we thought it would be difficult to increase the prospects of an on hold Fed next month, the CME Fed Watch tool showed a 5% jump in odds of a pause by the Fed after CPI and claims data were released. On the other hand, the San Francisco Fed indicated it was premature to predict a pause or a rate hike by the Fed for next month’s meeting and that probably prompted some long liquidation yesterday. Looking ahead to the action today, the markets will be presented with a flurry of global price measures from New Zealand, France, Spain, and the US. In retrospect, given the muted reaction to US inflation data yesterday, reactions to US PPI today might also be muted unless the result is an outlier.
PLATINUM / PALLADIUM
From a strict technical perspective, yesterday’s chart action in platinum gives off indications of a bottom. However, the platinum market lacks distinctly bullish fundamentals capable of fostering a rally beyond simple technical balancing. However, platinum ETF holdings did see a second straight inflow yesterday offsetting a recent pattern of outflows. On the other hand, the bullish global macroeconomic outlook has softened this week which in turn should reduce platinum demand expectations. With the October platinum contract into this week’s low posting a decline nearly $50 from the COT report mark off, the net spec and fund long might have approached mostly liquidated positioning. Given the aggressive recovery in platinum yesterday and the record net spec and fund short positioning in the palladium market, it is highly likely that yesterday’s platinum rally was pure short covering/profit-taking by short speculators. However, in the palladium market, the market also lacks definitively bullish fundamentals to spark sustained buying beyond classic technical short covering.
With a risk off vibe flowing from weakness in global equity markets, another noted inflow to daily LME copper warehouse stocks, a minimal increase in weekly Shanghai copper warehouse stocks and a fresh downside breakout early today, the path of least resistance is down in September copper. Even though the copper market forged a higher high yesterday, the market was unable to hold the gains despite a weaker dollar and a small measure of risk-on flowing from equities. However, LME copper warehouse stocks continue to rise consistently which continues to erode the tight supply argument which was the primary basis for the copper rally last fall and early winter. A caveat to the bear camp is trade whispers of Friday Chinese stimulus announcement.
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