GOLD / SILVER
While it is too soon to suggest a pattern is developing both gold and silver saw inflows to ETF holdings yesterday of 25,518 ounces with silver posting the largest one-day inflow since February 2021 of 18.6 million ounces. Therefore, both gold and silver ETF holdings sit above the levels at the start of the year. In fact, silver ETF holdings are now 1.3% higher on the year. It is likely that a measure of gold weakness this morning is the result of classic back and fill profit-taking from a recent 9-month high. Overnight some gold mining companies raised forward production guidance while one major producer saw reduced current production one of which was the result of reduced operations following a fatality. At present, supply issues in both gold and silver are likely to remain less important than dollar action and demand signals. We are not sure of the potential price impacts from reports that Russia’s 2nd largest gold mining company is moving its headquarters from New Jersey to Kazakhstan reportedly to move to a friendlier domicile with closer ties and acceptance by Russia. Despite a very supportive massive daily inflow to silver ETF holdings yesterday, a forecast from Fresnillo predicting 2023 silver production to rise to 64 million ounces from 57 million in 2022 justifies early weakness in prices. However, Fresnillo silver production last year came in 3 million ounces below the company’s forecast. Like the energy markets, we see gold and silver as temporarily overbought from both technical and fundamental perspectives. While not as powerful of an impact as a downside breakout in the dollar, seeing treasury prices return to last week’s highs could spark a rally without specific support from a weak dollar. In our opinion, gold and silver have settled into a pattern where the dollar will still need to pull precious metal prices higher with periodic downside extensions.
PALLADIUM / PLATINUM
While it will take a longer string of noted inflows to platinum ETF holdings to suggest a positive investment trend is developing, upcoming inflows should be monitored for that potential. Fortunately for the bull camp, the platinum market was significantly washed out into last week’s lows and perhaps that will serve to mitigate the current downward track. Unfortunately for the bull camp, significant speculative long positioning in platinum keeps the potential for significant volatility and downside follow-through high in today’s action. In fact, on a failure of a key chart support levels of $1,035.90 we expect a wave of fresh stop loss selling. With an extended pattern of lower highs, only minimal investment interest in palladium ETFs and fears of losing market share in manufacturing processes to cheaper platinum, the bear camp in palladium has more ammunition than the bull camp.
We expect copper prices to continue to chop within a range as the $4.25 level seems to have factored in a good measure of improved Chinese copper demand prospects. However, with significant volatility in the Covid condition inside China, additional demand orientated buying interest might wait on the sidelines until Chinese daily infections began to fall. On the other hand, the tight global supply theme was given added credence overnight following news that the world’s largest copper producer (Codelco) saw its 2022 copper production decline by 10% from 2021 with a decline in output pegged at 172,000 tons. Furthermore, Poland’s KGHM indicated their December copper sales and production posted declines last year, but that news also failed to lift prices. In another supportive overnight development, Goldman Sachs expects aluminum prices to jump 50% because of demand outstripping supply and that indirectly adds to positive copper demand expectations. According to some market sources, a portion of the bull camp with profits from the January reopening rally is beginning to bank those profits and move to the sidelines because of a trading lull during the Chinese holiday. In fact, the copper trade has clearly lost a measure of its recent bullish sensitivity as a long list of positive manufacturing PMI readings for Europe, UK and the US yesterday helps foster optimism toward global growth and that news failed to result in a positive close.
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