Written Commentary
PALLADIUM / PLATINUM
The hard setback in platinum from yesterday has extended today and is justified by a continuation of softening global economic expectations. The bear camp also has a technical edge given the significant reversal on high trading volume and surging open interest. As suggested already, open interest in platinum ramped up aggressively on the rally and that might suggest new money flowed into futures last week which could now feed a wave of stop loss selling. Further evidence of the broad and building long interest in platinum was seen last week with platinum ETF holdings gaining 117,223 ounces. The single week inflow to platinum ETF holdings represents a 3.6% jump in total holdings. The supply-side of the equation should provide some support in platinum against the current liquidation track, as Amplats 1st quarter platinum production declined by 6.2% versus year ago levels. However, with the short-term bias shifting down in July platinum, a temporary slide below $1,000 is possible but both supply and demand forces should help underpin prices soon. Not surprisingly, the palladium market also came under pronounced selling overnight and we expect spillover selling from a very overbought platinum market to add further pressure on palladium today.
GOLD / SILVER
While the dollar posted a fresh lower low move early today, the gold and silver markets are not showing initial bullish sensitivity to that development. The bull camp should also be disappointed with the failure to see flight to quality buying interest in gold this morning after market concerns flowing from First Republic Bank news that deposits fell 40% in the first quarter as that rekindles bank crisis concerns. A bullish outside force seemingly lost on the gold and silver trade early today is a significant decline in US treasury yields. However, news that Chinese first quarter gold production increased by 1.9% is bearish, but fortunately for the bull camp Chinese gold consumption in the first quarter increased by 12.2% on 291 tons thereby eating up the entire expansion of domestic production. Countervailing a portion of the support from increased Chinese first quarter gold consumption is evidence that Turkey lowered its gold purchases from Switzerland by 75% last month as the Turkish central bank has been the most stalwart gold buyer of global central bankers. From a classic fundamental perspective, the gold market lacks the bullish buzz present in the first half of April, with the weakening dollar one of the few bullish arguments in play. On the other hand, US data has definitively softened and moderation in upcoming 3rd tier price components of the PCE, Case Shiller home prices, a US housing price index reading, and employment cost index report could bring down the threat of a hike further by the end of this week.
COPPER
Apparently, an extension of global risk off anxiety from soft equities and a large 6900-ton single day inflow to LME copper warehouse stocks has pulled the rug out from under the bull camp this morning. Yet another bearish supply development overnight came from Anglo American quarterly production readings which increased by 28%. While we think blaming the current slide in copper on the prospect of a US rate hike next week is an indirect way to label softening demand, US industrial activity readings continue to soften and that has international copper demand expectations falling. With LME copper stocks posting an inflow of 2,000 tons yesterday and an inflow of 6,900 tons today LME inventories are climbing away from 17-year lows.
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