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PGM Lacks Sustainable Upside Capacity


Even though PGM prices rose yesterday along with equities and other physical commodity markets, we feel the markets lack sustainable upside capacity. In fact, unless the Chinese planning meeting yields massive infrastructure spending plans, the demand outlook for PGMs will likely remain anemic. Fortunately for the bull camp in palladium, the market appears to have become massively oversold from a nine-day high to low slide of nearly $400. With the platinum market diverging aggressively with the palladium market in the last two trading sessions, the markets appear to have different fundamental factors at work. Yesterday platinum ETF holdings increased by a mere 495 ounces while palladium ETF holdings decreased by an inconsequential 3 ounces. The path of least resistance is down as demand fears are present throughout the commodities market.

platinum bars


Given overnight news flow from China, we are surprised that December copper has not forged a new low for the month of October. Apparently, copper supply on warrant at the Shanghai exchange jumped by a single day record amount of 47,024 tons. Furthermore, the jump in copper supply on warrant, follows last week’s doubling of Shanghai copper warehouse stocks. In a negative demand orientated story from China overnight the leadership has apparently decided to delay the release of GDP readings until after the central planning meeting which has sparked fear of a soft reading. In the end, the copper market is disappointed in the lack of optimism flowing from the Chinese central planning meeting. Even major mining companies like Rio Tinto are warning of softening copper demand. With yesterday’s gains in copper likely the result of a surprise “risk on” mentality the extension of risk-on today should provide copper some modest cushion. However, for the copper market to sustain a rally and trade consistently above $3.50 will likely require the announcement of a very robust Chinese infrastructure program.


While the US dollar did forge a lower low overnight, the index rebounded and pulled support from under the gold and silver markets. Unfortunately for the bull camp gold ETF holdings yesterday declined by 63,070 ounces for a 10th straight day of outflows. However, silver ETF holdings increased by nearly 1 million ounces for a 3rd straight day of inflows which reduces the year-to-date outflows to 118 million ounces. While there is not a clear fundamental reason behind the significant reversal/downside breakout in the dollar yesterday, that action will continue to be the dominating force in the gold and silver trade. The gold market could also see knock on selling from deteriorating sentiment toward gold ETFs which saw holdings last week decline by 535,568 ounces. Furthermore, the trade is focused on a single gold ETF instrument which technical analysts point out has forged a key failure on its charts.


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