PALLADIUM / PLATINUM
The PGM markets continue to chop without an active flow of market impacting fundamental developments. The bullish argument for palladium has deteriorated along with economic psychology in the past 4 sessions and concern for a disruption of Russian PGM supply flow has not returned to the headlines. However, with December palladium yesterday falling below the midpoint of the last 2 months range the risk to the long camp has moderated. On the other hand, fresh longs in December palladium might need to risk positions to $2,069.50 today. With the platinum market holding in the upper third of the last 3 months trading range and expectations for deterioration in auto sales (from recession fear and surging car loan rates), we prefer the short side of the market. Near term downside targeting is seen at $850. Platinum ETF holdings declined again yesterday by 1,098 ounces and continued an outflow pattern.
GOLD / SILVER
Today could be a major trend setting session with the US PPI number expected to provide information on the status of US inflation. As it currently stands the markets largely expect another jumbo US rate hike in the first week of November and expectations for further aggressive rate hikes could begin to build if PPI and CPI over the next two sessions fail to show progress on shutting down inflation. However, with expectations of a gain of 0.2% the markets might not get a definitive signal on the direction of inflation. On the other hand, the markets are likely to take slight deviations from expectations as definitive only to see those reactions burn out quickly. Unfortunately for the bull camp, the focus of the gold and silver trade will remain fixated on the action in the dollar and given an as expected or higher US PPI report the dollar should recover aggressively and spark a wave of speculative selling in gold. In the end, the gold market today is likely to behave in a fashion completely contrary to historical patterns with signs of ongoing inflation causing gold prices to plummet. Given the divergence between gold and silver prices recently, we expect silver to show less volatility and perhaps less downside than in gold.
In retrospect, copper prices yesterday could have plummeted as word of a flare in Chinese infections is likely to extend and or expand lockdowns and keep headwinds blowing on the Chinese economy. However, the copper trade is likely to be temporarily dominated by big picture macroeconomics (at least for several hours) as PPI from the US might cause significant gyrations in equities, treasuries, currencies, and nearly all actively traded physical commodities. On the other hand, the copper market has shown less correlation with dollar and interest rate action than other physical commodities and remains vulnerable to negative Chinese related headlines. It should be noted there is a major upcoming political meeting in China where the current president is expected to achieve a very long-term leadership role.
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