Palladium Upside Breakout

PALLADIUM / PLATINUM

The upside breakout in December palladium this morning is likely the result of a broad-based global risk on environment. However, both PGM markets likely benefited from a surge in Indian platinum demand following a recent reduction in prices subject to Indian importer taxes. Unfortunately for the bull camp India has apparently adjusted the platinum import tax back up from 10.7% to 15.4% and a continuation of recent trends platinum ETF holdings declined again yesterday by 8,209 ounces, extending the string of daily outflows to 15 days. With the palladium market posting the highest trade since early August overnight, the bull camp has favorable charts in its favor. On the other hand, Russia remains a wildcard but without a major horrendous action by the Russian President, we doubt there will be a sudden major Russian supply threat. Initial resistance in December palladium is $2,400. The platinum market forged a very impressive upside extension yesterday and has extended that run this morning, projecting a potential test of a downtrend channel resistance line up at $926.75. With the net spec and fund long in platinum as of early last week was nearly liquidated and some of yesterday’s gains likely fueled by fresh speculative buying, the trade has discounted the unrelenting pattern of outflows from platinum ETF holdings. While we will not discount the potential for further gains without an all clear from the constant fear of rising interest rates and slowing, the risk of chasing platinum with buy orders is unattractive.

GOLD / SILVER

The bullish outside market environment has extended for gold and silver into another trading session. In addition to a lower low in the dollar index, an upside breakout in treasury prices and risk on from equities provides an extension of short covering and perhaps developing technically related momentum buying. Certainly, seeing what appears to be a key high in US treasury rates (short-term) and seeing the potential for a sustained shift down in the Dollar trend justifies a portion of yesterday’s aggressive rally in gold and silver prices. It is also likely that the smallest net spec and fund long position in gold since late 2018 has resulted in a noted wave of short covering. On the other hand, it is not a given that gold and silver prices would surge higher off flight to quality buying if rumors of trouble at a major Swiss bank prompt fear of contagion. In the short-term, expect a tight inverse relationship between gold and the dollar and a tight positive correlation between gold and treasuries. There are two downtrend channel resistance lines in December gold, with first resistance at $1,731 and then again up at $1,739.

COPPER

Not surprisingly, the copper market has benefited from the extension of risk on sentiment from the Monday trade. However, the market should be experiencing headwinds from the ongoing Chinese holiday and from an extension of the pattern of higher LME copper warehouse stock daily readings. However, despite a significant risk on day in global equity markets yesterday, noted declines in US treasury yields and further downside in the dollar, the copper market yesterday failed to rally in sync with other physical commodities. Certainly, the weeklong Chinese holiday dampens near term physical demand while big picture macroeconomic demand concerns remain in place just under the surface. In today’s action the copper market should take direction from US factory orders from August and from the monthly Job Openings Labor Turnover Statistics report which the trade expects to show a slight drop in the number of US jobs open.