PLATINUM / PALLADIUM
With a major range down move yesterday and a lower low forged again this morning, the technical path of least resistance in platinum is clearly pointing downward. Fundamentally, the market environment this morning has seen recessionary fears rekindled by soft European PMI readings and inverted yield curve chatter. With the huge range down washout in July platinum yesterday, the near-term target becomes $1,050.10 and perhaps $1,046.10. While we think platinum can regain the losses in the coming days after fear of the Fed dissipates, strength in the dollar and spillover weakness from gold and silver could result in a big spike down finish to the current washout in the coming 36-hours. While the palladium market has managed to respect yesterday’s spike low early today, the close yesterday below the 50-day moving average and with the trade remaining below that 50-day moving average of $1458.70 overnight, a return to $1400 is likely. The most fortunate factor for bulls in palladium is the markets oversold status from the 2nd half of April slide and the markets relative proximity to the bottom of an extended consolidation zone.
GOLD / SILVER
While the gold market is showing very little direction this morning and is also exhibiting very little in the way of volatility that is likely to change within the next 36 hours with the Fed decision tomorrow likely to set a near term trend for prices. However, we think the silver market will diverge with gold with classic physical commodity market fundamentals driving silver prices. Unfortunately for the bull camp in gold, the dollar index appears to be poised to breakout to the upside of a 3-week sideways consolidation pattern today perhaps because of signs of negotiating in Washington to avoid a government shutdown. On the other hand, the US Treasury Department surprised the trade with news that the US could default earlier than expected on June 1st without a debt ceiling hike. Obviously, both gold and silver see some pressure from the Australian interest rate hike overnight and from chatter overnight that factory activity in the euro zone weakened and rekindled recession chatter. A minimally supportive development overnight came from somewhat muted inflation readings from Europe. In the end, once the Fed raises interest rates, the bull camp in gold and silver will have to show they can regain control or corrective action could become quite aggressive.
In retrospect, the rally yesterday in copper was surprising given slightly disappointing economic sentiment flowing from China. The copper market will probably see residual support from a bullish Goldman price forecast with the bank predicting prices capable of forging a 25% upside surge in the coming 12 months. In fact, Goldman thinks copper will see improved demand through the prime Chinese building season which peaks in June. Goldman also suggested the setback in global copper mine production last year has left the copper market very sensitive to incremental demand improvement from China. However, in the background daily LME copper stocks have been marching consistently higher and could signal softening demand for copper outside of China.
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