GOLD / SILVER
With gold and silver tracking lower in the face of a significant flare in tensions involving Russia, flight to quality interest is absent again this morning. Outside market influences for the gold and silver markets continue to favor the bear camp this morning with the dollar showing signs of a shift back into an uptrend, treasuries potentially topping out last Friday and the lack of definitive demand stories out of India into the festival demand window. It is also clear that US scheduled data at the end of last week sparked some renewed speculation of a jumbo rate hike in December. While the markets have widely factored in a November 75 basis point rate hike on Wednesday, the Fed could offer up hawkish dialogue ratcheting up the odds of a 75-basis point December hike. Unfortunately for the bull camp, international demand for gold and silver remains suspect with the infection problem in China reducing their purchasing interest as the economy encounters increased headwinds. Last week gold ETF holdings declined by 359,046 ounces and are down 2.7% year-to-date. From a technical perspective, the net spec and fund long positioning in gold sits near the lowest level since the middle of 2019 and a return to this month’s low probably reduces the net long enough to mitigate large, compacted stop loss selling washouts. Other short-term technical indicators have shifted back in favor of the bear camp in gold with patterns of investment outflow from both gold and silver ETFs rounding out the negative demand outlook. Even the silver market has rolled over and its short-term technical signals have also shifted into fresh sell modes. At present, silver looks to remain slightly disjointed with daily action in gold, with its industrial demand focus potentially discouraging sellers. Last week silver ETF holdings saw outflows of 1.63 million ounces pushing the year-to-date contraction to 14%. While silver net spec and fund long positioning is not at the lowest level since 2019 like gold positioning, the net spec and fund in silver long is extremely low in general after shifting into a net spec and fund short several weeks ago.
PALLADIUM / PLATINUM
Even though December palladium is bucking the metals downtrend with small gains this morning, the PGM complex should be disappointed with surprisingly soft Chinese PMI data for October. In fact, trade chatter suggests the data was even worse than released thereby leaving China news a negative for most physical commodity markets. However, the recent positioning report showed Palladium shifting back into a net short and a downside breakout could result in the market becoming “mostly sold-out”. We think December Palladium has an unreliable initial support level this week at $1,869.50 and to derive the next downside support requires a weekly chart which projects down to $1,832. As indicated already, the platinum market continues to show significantly more bullish sensitivity than palladium. In fact, short-term technical indicators remain in buy modes and uptrend channel support to start the trading week is $895.40. In retrospect, the January platinum contract has recoiled sharply from that trendline in 5 of the last 9 trading sessions! However, the net spec and fund long in platinum is building with the recent long reading the highest since April!
Last week we saw little justification for the $0.20 rally in December copper in the face of daily worsening of the Chinese Covid lockdown situation. In addition to an expanding Covid lockdown threat, Chinese manufacturing and nonmanufacturing PMI readings for October overnight came in much weaker than expected which obviously tempers Chinese copper demand prospects. Fortunately for the bull camp, LME copper warehouse stocks last week posted another week of noted declines (down more than 11,000 tonnes) and the weekly Shanghai copper warehouse stocks figure fell by 29% over a single week. On the other hand, overall physical copper within the Chinese supply chain remains extremely tight thereby increasing risk to those pressing the short side below the middle point of the last 30 days range which is roughly $3.3690. Another supply-side supportive development is the potential for a fresh local community strike in Peru expected to disrupt copper production. Yet another supply-side support for prices this week is a 2.6% decline in Chilean copper production in September from year ago levels. Fortunately for the bull camp, the copper market remains net spec and fund short which could moderate this week’s downward tilt.
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