GOLD / SILVER
While part of the significant gains this morning is partially the result of a 2-day high to low slide of $58 in gold, and $1.30 in silver, the markets are also benefiting from a slight setback in the dollar, reports of a possible relaxing of Chinese incoming air travel restrictions, and reports of strong Chinese demand for Australian gold. Apparently, the largest Australian precious metal refiner indicated that China purchases of gold bars has remained strong, and Bloomberg overnight posted a story from the Perth Mint indicating institutional buying of gold has “surged”. Even the silver market saw positive demand news last night following a forecast that Indian silver consumption might jump by 80% this year and post a record. However, Indian silver purchases in the prior 2 years has been near record lows and therefore part of the recovery is from pent-up demand. From a technical perspective, the sharp rejection of the downside breakout in December gold from yesterday was posted on a relatively high trading volume which could serve to discourage fresh selling today especially given the strong early upside follow-through rally. While the rejection of the spike down move in gold yesterday was impressive, the spike down reversal in silver was even more impressive. In fact, the December silver contract has now violated and rejected the $19.00 level on 5 of the last 8 trading sessions and looks to see both inside and outside market buying influences today!
PALLADIUM / PLATINUM
As we expected earlier in the week, the platinum market broke out to the downside and appears to have further downside ahead. While most of the recent declines in palladium relative to platinum can be attributable to the talk of rotation in manufacturing processes from palladium to platinum overall physical and investment demand is likely to contract further for both PGM markets following the US Fed outcome this week. In fact, yesterday palladium ETFs came under significant pressure relative to other precious metal instruments in a sign of a capitulation by the bull camp. Even though the December palladium contract managed to reject a large portion of the spike down move yesterday, we expect December palladium to fall below $1,775 in the days ahead. It would have been very impressive if platinum had avoided violating uptrend channel support this week in the face of an extremely negative shift in global economic psychology.
Not surprisingly, rumors that China may relax incoming travel restrictions has sparked significant overnight buying in copper. Adding into the bullish tilt is a double injection of supply concerns following outflows from the daily LME copper stocks report and an outflow from the weekly Shanghai copper warehouse stocks report. In fact, at the recent pace of daily LME copper stock declines, the exchange could run out of stocks within 23 days. Furthermore, Shanghai copper weekly warehouse stocks readings have declined so much that it’s inventories could be depleted with two consecutive large weekly outflows. Copper should also draft support from favorable European data flows early this morning, but that optimism could be erased if US nonfarm payrolls come in at expectations and the US unemployment rate ticks higher as expected. In retrospect, seeing copper remain within a consolidation range this week in the face of significant macroeconomic uncertainty is likely the result of ongoing tightening of supply against modest bearish demand news. In the end, copper prices eroded toward the bottom of the consolidation zone and rejected those levels aggressively and therefore value is seen under $3.40.
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