Written Commentary
GOLD / SILVER
Despite a lack of bullish reaction to the weakness in the dollar yesterday, the gold market has responded to the downside extension in the dollar overnight with a solid upward pulse and the highest trade since June 23rd. NATO’s acceptance of Sweden in their alliance probably fostered gold buying over the last 24 hours, as that action could result in Putin flashing out militarily against the alliance. However, the bull camp should be cheered by reports that the Bolivian central bank bought five tons of gold in the first half as that facilitates predictions yesterday that central bankers will continue to buy gold given the uncertainty of inflation. Both gold and silver are drafting modest lift from news overnight that the Chinese government has instructed banks to reduce interest rates for Chinese property sector borrowers and while that might cushion the Chinese property sector that does not appear to be a reaction that will spark widespread increased economic activity throughout the economy. On the other hand, with US treasury yields posting the highest yield of the year yesterday gold looks to remain vulnerable to further rising rate inspired selling pressure. Looking ahead, the trade will see an especially important US consumer price index reading on Wednesday with lingering signs of inflation from that report providing further lift to treasury yields which in turn should attract even more foreign capital to the dollar. While the silver market managed a higher trade yesterday, the trade remains concerned of slack demand from China and because the tight global supply and demand condition in silver has been heavily discounted by speculators even though forecasts show stocks in deep deficit standing. While silver ETF outflows have not been as dramatic as in gold, the general pattern favors disinvestment in silver denominated ETF instruments.
PLATINUM / PALLADIUM
Weakness in the dollar and Chinese government support for its property sector has helped PGM markets discount a bearish story from the Globe and Mail questioning the future demand for platinum in an “EV world.” However, the market is also discounting a second straight day of outflows from platinum ETF holdings with 1,195 ounces exiting. With the platinum and palladium markets yesterday tracking in opposite directions we usually suspect spread trading is dominating the trade. Therefore, it is possible that long platinum short palladium spreading are in vogue as a position for a broad Chinese stimulus package. However, with the slide in palladium, the market is likely to post another record net spec and fund short and that could result in platinum surprising the trade with an aggressive short covering bounce. While the palladium market technically broke out to a fresh contract low thereby damaging its charts following a 2-week consolidation, the market aggressively rejected that washout in prices and returned to the consolidation zone as a sign of value on the charts.
COPPER
The spike up move overnight in copper was clearly the result of news that the Chinese central bank instructed banks to lower interest rates to those in the property sector. Another supportive development in copper is extreme heat in Chinese copper producing provinces which has resulted in threats of insufficient power due to declining Hydro electricity output (due to low Dam water levels). While China is showing signs of limiting exports of various industrial metals/materials that is unlikely to be a supportive development for copper. A limiting overnight development came from Peru where the second largest copper producer saw a 35% jump in copper output from the Las Bambas mine on a year over year basis. However, the year-over-year comparison is suspect because of severe production problems last May. On the other hand, two other Peruvian mines posted production gains of 8% and 5.9% and total Peruvian copper output in the first 5 months of the year is up 19%. In the end, copper has forged persistent gains off the idea that the Chinese government will eventually stoke the economy into growth. Unfortunately for the bull camp, the Chinese have already launched a series of plans to support their economy and so far, the trade has been unable to detect signs of green shoots in the Chinese economy.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
