Written Commentary
PLATINUM / PALLADIUM
July platinum and June palladium were lower overnight, giving up their gains from yesterday in the wake of the lower-than-expected Chinese inflation numbers, which indicated their demand is not recovering as quickly as expected. While the platinum market did not hold all its upside breakout to the highest level since April 24th yesterday, the market did rally in the face of weakness in gold, and the charts remain generally supportive. Palladium also managed to rally in the face of declining gold and silver prices yesterday, which suggested the PGMs are benefiting from relief that US inflation is not worsening and that the chances of a US Fed pause remain good. Unlike the platinum market, the palladium spec and fund net long position (even adjusted for the gains from last week’s lows) likely retains further short covering capacity.
GOLD / SILVER
Gold and silver were both lower overnight, with July silver making a new low for the week. The markets’ inability to hold a CPI-inspired rally on Wednesday hints at a lack of conviction in the bull camp. However, the bear camp is probably in fear of inflation continuing to ease, as today’s US PPI report is expected to register a slower inflation rate than CPI. Furthermore, the dollar failed to fall sharply enough to offset disappointment from the lack of a hot US inflation reading. Chinese CPI readings overnight were lower than expected, which further dampened inflationary expectations. Even the US debt ceiling flight to quality angle seems to be on hold, as negotiations are not scheduled to resume until Saturday. We see gold and silver vulnerable to corrective action again today, especially if US inflation readings are more bearish than yesterday.
COPPER
Copper prices remain on the defensive this morning, as they have reached a new four-month low. Weaker than expected Chinese inflation readings have rattled the market, while a pullback in the Shanghai Composite has also pressured prices. With a big range down yesterday and again overnight erasing the recovery from last week’s low, the inability to see a risk-on reaction following yesterday’s critical US data, and residual limitations from the 14% jump in Peru March copper production, the bear camp has ammunition to continue to press the downside. On the other hand, reports that Chinese refined copper output has recently increased with smelters restarting operations coupled with and a significant spec and fund net short position could eventually provide some support.
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