Volatility in Metals Continues

GOLD / SILVER

While we think the gold market has posted a moderately reliable low with the Wednesday washout, we also expect volatility to increase in both gold and silver ahead and we expect both markets to retest and perhaps temporarily violate recent lows. However, the gold market showed signs yesterday that it was receiving a flight to quality bid from renewed economic uncertainty and perhaps more importantly from escalating concerns of potential trouble in the financial markets from the debt ceiling situation. In slightly supportive news a key Russian gold mining production region posted a 10% decline in production in their 1st quarter, while gold ETF holdings yesterday saw a large inflow of 32,740 ounces. We suspect that a wave of disappointing global PMI data today has added some economic uncertainty, but strong European Services PMI readings muted economic uncertainty from other weak PMI components. While the silver market seemingly delinked from gold yesterday, it appears to have come back into sync today with moderate declines. The weakness in silver is unfolding despite very favorable Silver Institute deficit predictions earlier this week, signaling the silver market is focused on spillover fear from big picture macroeconomic selling of physical commodities.

PALLADIUM / PLATINUM

Despite general weakness in global equities and what feels like another risk off day, July platinum sits just under yesterday’s 3-month highs and should be significantly supported by yesterday’s massive 72,469 ounces single day inflow to ETF holdings! As indicated in gold and silver coverage today, volatility in daily Metals ETF holding flows has expanded dramatically and that could indicate growing investment interest. Platinum ETF holdings have now expanded 5.9% year-to-date and to put the large daily platinum ETF inflow in perspective, the year-to-date gain in holdings nearly doubled overnight. On the other hand, we suspect a significant portion of the rally in platinum this week has been reliant on improving Chinese demand hopes and to a smaller degree from hope of improving global demand. However, into the end of the week, favorable demand expectations are certainly deteriorating. Palladium ETF holdings have also displayed significant volatility in daily flows with holdings 4.6% higher year-to-date. The bull camp is fortunate from a technical perspective, as palladium gains have been less stellar than platinum, leaving the market less overbought.

COPPER

With July copper violating $4.00 early today, negative economic vibes flowing from ongoing weakness in equities and residual concern for Chinese copper demand from South American mining officials earlier this week leaves the path of least resistance pointing down. As indicated already, the copper market was unnerved earlier this week by reports from a major Chilean copper producer CEO indicating they did not see signs the Chinese appetite for copper was improving. While a 9% increase in Chinese March refined copper output is negative on its face, from the prospects of lower Chinese refined copper imports ahead, that development could also be shaped into a positive by suggesting the increased fabrication is purposeful to meet projections of improved demand by the Chinese government. Strong Chinese refined copper production could also result in improved imports of copper ore and perhaps copper concentrates. As in many physical commodities markets, copper price action today will likely track with equities and inversely with treasuries, and the Swiss franc.

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