Volatility in the copper market has largely moderated this month with the market supported by extremely tight internal Chinese copper inventories and by a lesser degree from a developing pattern of daily LME copper stock withdrawals. Limiting the copper market on the upside this morning is downbeat predictions for the Chinese steel industry which indirectly points to ongoing softness in the Chinese economy from lockdowns. In retrospect, the copper market could have seen major selling off news that China could help the Russian copper industry with significant purchases next year to avoid increased premium charges from other suppliers. Seeing Russian copper supply exit Russia and meet Chinese demand next year is a negative to world copper prices. As in other metal markets, this weak the action in copper disappoints the bull camp this week as evidence of extremely tight deliverable stocks at the Shanghai exchange was given little credence. In another negative overnight fundamental development Chinese business confidence this month is projected to have slowed suggesting headwinds from Covid lockdowns remain in place.
GOLD / SILVER
With the dollar extending sharply lower and reaching the lowest level since September 20th, and US treasury yields falling to four day lows the large rally in gold this morning is justified by outside market action. Clearly, the hope for a moderation of the US rate hike pace after the November hike has continued to lift physical commodities like gold, silver, palladium, platinum, and copper. While the gold market has not been directly impacted by classic supply news from mining companies, predictions of lower in the range production from Shanta was offset by confirmation of full-year target production by Hochschild with Fresnillo gold production unchanged from the prior year. While some traders attribute the sharp rise in gold prices this morning to increased flight to quality interest following disappointing big tech earnings yesterday and follow-through equity weakness last night, US equities are only under moderate pressure this morning. A potential negative for gold and silver prices going forward is very soft demand for a US 2 year note auction yesterday, as that indicates investors are not yet attracted by higher yields, but treasury market liquidity concerns should not be discounted as a potential financial flashpoint. Unfortunately for the bull camp, the gold and silver trade largely remains immune to classic flight to quality developments that would have stirred buyers in the past. From a technical perspective, noted declines in gold prices could bring the net spec and fund long position in gold down near the lowest levels since the latter part of 2018 and that combined with a pickup in Indian bargain-hunting buying on dips could leave a near term upward tilt in place. With the silver market aggressively rejecting early weakness yesterday and at times sitting $0.64 above the lows and significantly above the early October lows, the silver market continues to show the capacity to outperform gold on the upside and hold up better than gold on downside moves.
PALLADIUM / PLATINUM
Apparently, the takeaway from GM earnings, on the tail of news earlier in the week that Tesla was reducing prices in China, has sparked demand concerns in the PGM markets. The bull camp should be further discouraged given the slide in PGM prices in the wake of this week’s risk on improved view toward physical commodities. However, with the palladium market showing a net spec and fund short of 1,444 contracts last week and the market into the lows yesterday falling $144 from the COT report the spec and funds longs are likely on the sidelines and stop loss selling might become less severe. To arrive at a credible support point on the charts requires the use of weekly charts which provides the next value price $75 below the Tuesday US closing price in palladium. Like palladium, platinum prices came under pressure following a downshift in demand expectations from the auto sector in the wake of GM earnings and following Tesla reduction of vehicle prices in China. In a positive development platinum ETFs yesterday saw a rare inflow of 1,145 ounces but holdings year-to-date are still 14% lower.
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