While copper prices retrenched from yesterday’s very impressive upside breakout, the market continues to perform impressively given an ongoing wave of bearish developments. In a fresh bearish development overnight Shanghai copper warehouse stocks extended a string of large inflows with 7589 tons added to storage this week. Yet another bearish supply-side development came from a rise in Chinese bonded copper zone supplies of 15,900 metric tons from February 10th. Yet another bearish supply measure was a 9100-ton increase in industrial held supplies of copper in China. Fortunately for the bull camp, demand expectations primarily centered on China have been a very powerful effective support for prices. In fact, overnight Chinese copper cathode prices jumped as if to totally disregard growing supply news this week inside of China. For now, the bull camp rests its case on Bloomberg reports putting Chinese traffic levels back at the highest since the Fall of 2021. The Bloomberg traffic measures are a measurement of the top 15 Chinese cities from a vehicle registration perspective and those readings have returned to the highest level since June 2021. Another residual item supporting favorable Chinese demand hopes came from a Chinese central bank liquidity injection earlier this week which was reportedly carried out to meet rising new loan demand. In conclusion, demand favors the bull camp and supply factors favor the bear camp.
GOLD / SILVER
With the dollar index ranging to new highs for the move overnight and seemingly on track to retest the January high, more declines are expected in gold, silver, palladium, and platinum. In fact, precious metals are facing intense fear of even higher interest rates especially with two Fed members yesterday offering fresh hawkish dialogue with one member lamenting the Fed was not more aggressive in its early February rate hike. Furthermore, the Cleveland Fed President yesterday indicated she now sees a compelling case for a 50-basis point rate hike in the February meeting. Going forward we suspect other hawks on the Federal Reserve Board will voice similar projections in the coming days. In fact, Mester also suggested recession could coincide with even higher interest rates. In another less significant negative both gold and silver posted declines in ETF holdings yesterday with 9444 ounces flowing out of gold and 373,704 ounces flowing out of silver. In short, gold and silver have a plethora of bearish forces which are compounded by severely damaged charts. We see the trend in gold and silver remaining down with the markets slowly getting closer to value.
PALLADIUM / PLATINUM
While the platinum market managed to avoid a fresh lower low for the overnight, the charts and demand fundamentals remain bearish, and more declines are likely. Fortunately for the bull camp in platinum the market managed to rebound yesterday potentially because of additional signs of increased Chinese road activity in 20 major cities. In a development that has not been given much attention in the marketplace, the threat of lost platinum production from south Africa remains very high with electric grid problems threatening shutdowns of mining facilities on a very frequent basis. Last year, South Africa supposedly suffered 200 days of power cuts because the national utility was fighting bankruptcy from poor management. However, the current dominating focus of the platinum trade is the threat of global slowing from even higher interest rates which should dent vehicle demand from higher loan expenses. With further dollar strength this morning and ongoing risk off sentiment from global equities, and PGM demand thought to be softening, the path of least resistance in platinum remains down with near term targeting under $900. In palladium, the market adjusted for the tremendous losses over the last two weeks has likely forged a record net spec and fund short. However, difficulties at the CFTC in releasing position reports make the prediction of the most bearish speculative stance in history in palladium somewhat suspect without data.
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