Written Commentary
PLATINUM / PALLADIUM
Clearly, the platinum market is tilting bearish this morning as a Chinese announcement to help boost sales of automobiles and electronics (to ultimately support the broad economy) has not prompted long interest in platinum. Despite a month over month doubling in Swiss platinum exports in June, a noted decline in Amplats 2nd quarter total PGM production (-8.5%) and a decline of platinum production of 8.8%, platinum prices fell through the floor yesterday in a sign that the bull camp was not interested. While the platinum market did not show a direct negative reaction to the steady Chinese central bank rate decision, we suspect the failure to provide stimulus by cutting rates added to the prevailing bearish view toward the Chinese economy and therefore toward platinum prices.
GOLD / SILVER
With a higher high for the move and the highest trade since July 12th in the dollar this morning, the lower track in gold and silver prices this morning is not surprising. In retrospect, the correlation between gold and the dollar strengthened yesterday as an upside breakout in the dollar resulted in gold falling after a new high for the move. Furthermore, with the dollar showing strength for five trading sessions in a row and building consolidation on its charts, the odds of additional dollar strength are elevated. Unfortunately for the bull camp, US treasury yields are showing signs drifting higher which means US interest rates have shifted bearish for gold and silver. From an internal supply perspective, production announcements from several mining companies have been offsetting with output overall generally remaining static. Unfortunately for the bull camp in gold, ETF outflows this week continued to signal waning investment interest and with the US rate hike threat expanding into next week’s Fed meeting, the path of least resistance in gold from the rates impact has likely shifted down. While we think silver will hold up better than gold, the shift in overall market forces is likely to prompt some long profit-taking declines.
COPPER
With a minimally positive early trade, the copper market is standing up to the marginal shift to risk-off, to higher dollar action and perhaps most importantly holding up in the face of inflow to both LME and Shanghai copper warehouse stocks. However, with China announcing a stimulus plan intended to stimulate sales of automobiles and electronics, the copper trade has likely found some measure of speculative buying. In retrospect, the sharp upside rally in copper yesterday to a 3-day high was suspicious from its magnitude given the lack of substantive bullish fundamental developments yesterday. However, the Freeport McMoRan CEO did suggest that demand for copper is much stronger than what classic economic indicators signal, and he also indicated that without significantly higher copper prices, expanding supply to meet demand for the clean energy revolution will be extremely difficult.
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