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Gold & Silver Remain Vulnerable


Fortunately for the bull camp in gold, the dollar index was unable to forge a higher high overnight and in turn simply matched the Monday peak in prices. We suspect gold and silver are benefiting from further assurances from the Chinese Politburo overnight indicating they would provide more support for commodities, the property sector and local government debt relief. However, August gold did damage its charts with a lower low this morning perhaps following news that Chinese net gold imports through Hong Kong declined 29% in June compared to May. According to a Chinese news agency Chinese gold output saw an increase of 2.2% in the first half of the year on a total of 178.6 tons of gold. The biggest increase in gold consumption in China was for gold coins and bars which jumped by more than 30%. However, investment interest outside of China remains negative to prices with gold ETF holdings yesterday posting an outflow of 100,060 ounces reaching the lowest level since April 7th of 2020! With the US dollar closing right on its highs on Monday to start the week, and a retest of that high early today, talk of a sustained uptrend in the dollar has been fixed into the headlines. In fact, despite almost conclusive market expectations for a US rate hike on Wednesday, the dollar is likely to continue to feed higher off that prospect. Therefore, both gold and silver are likely to remain under pressure until the tone of the Fed statement on Wednesday is known. Certainly, the potential for a rekindling of inflation from the rapid appreciation of energy and grain prices could suddenly become supportive of gold and silver, but that action could also come back to haunt the bull camp if prices continue to explode and in turn get the attention of the Fed on Wednesday.

gold and silver bars on black background


In a minimal and indirect positive for platinum prices, the Chinese government overnight indicated additional economic support was to be expected to boost commodities, assist with local government debt burdens, and further provide support for the beleaguered Chinese property sector. Another positive for the PGM markets is news that electric vehicle sales registrations in China jumped 17.3% in June but a loss in gasoline powered sales to EV probably cancels out the subsequent smaller use of PGMs in new technology vehicles. In a negative investment demand development, platinum ETF holdings yesterday declined by 5523 ounces which means holdings have declined for 6 straight days! Even though October platinum has managed to post consolidation action over the last 3 trading sessions, the bull camp lacks capacity with prices unable to benefit from a combination of fresh South African supply concerns and from a series of Chinese stimulus announcements. However, supply news is not all bullish with the largest Russian PGM producer posting a 5% year-over-year increase in platinum production with an increase in palladium output of 6% on quarter over quarter basis. In short, demand views are neutral to negative while supply remains neutral to negative.


A surprise range up extension overnight suggests the copper trade has finally embraced the prospect of improved Chinese economic activity ahead after the latest wave of supportive promises from the Chinese governing body. While the latest promise of support failed to provide specifics again, officials indicated assistance for commodities, property sectors and local governments suffering from heavy debt loads. In a negative supply development, the Congo projects exports of copper to increase by 50,000 tons per month after a dispute inside the country resulted in a backup of export supply of 200,000 tons. While recent increases in LME copper warehouse stocks have not been significant, inventories have risen from near 17 1/2 years lows and more importantly the latest changes in Shanghai copper warehouse stocks have documented inflows. On the other hand, investors saw value in copper mining shares yesterday which might have been a delayed reaction to the very bullish long-term supply tightness predictions from the world’s largest mining company CEO.


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