Election Likely to Bring Volatility in Metals

GOLD / SILVER

With the gold and silver trade tightly locked onto the action in the US dollar, the uncertainty and potential turmoil from the US election is likely to be a major influence on prices in the coming 24 hours or more. Unfortunately for the bull camp, gold and silver have not been consistently interested in flight to quality situations and have usually viewed geopolitical problems as a negative demand force. On the other hand, we would not rule out the potential for gold and silver to “come alive” later this week if US CPI meets or exceeds initial expectations of a gain of 0.7%. In other words, seeing US inflation worsen at the consumer level could shift thinking from confidence in the Fed to fear of runaway inflation. It should also be noted that the year-over-year projected change in the US CPI for October is 8% and excluding food and energy projections are calling for a month over month gain of 0.5%. Therefore, gold and silver are likely approaching a very critical fundamental junction, as hot inflation could result in a spike in US Treasury yields and a surge in the dollar. Gold has a critical downtrend channel resistance line and a pivot point today at $1,681.50, with a logical downside corrective potential to fall to $1,631. Last week gold ETF holdings declined by 732,827 ounces. Indian silver demand has soared this year with January-August purchases of 6,370 tonnes versus 153.4 tonnes for the same period in 2021. Downtrend channel resistance in silver today is $21.06, with the 100-day moving average down at $19.55 a possible target if a big risk off day unfolds into close of the US equity markets. Last week, silver ETF holdings declined by 7.7 million ounces and are now 14% lower on the year. On the other hand, gold and silver could benefit if inflation moderates, as that would likely send the dollar sharply lower and spark a significant rally in Treasury prices.

PALLADIUM / PLATINUM

While the palladium market managed to rise along with platinum yesterday, without a significant risk-on result from the US election, palladium is unlikely to rally with platinum. Last week palladium ETF holdings declined by 2,476 ounces and were 18% below levels seen at the beginning of the year. Obvious overhead consolidation resistance is $1,952 with the bottom of the range projected down at $1,831.70. With January platinum seeing a massive range up extension and the highest price since June 9 yesterday, the next upside target is seen at $1,018.40, which is also a gap. With the market rallying $80 in just three sessions, if a risk off environment were to unfold, it could quickly pull January platinum back to support at $950.

COPPER

Copper traded in a tight range overnight, but it was able to bounce back from early pressure and hold a mild positive tone coming into this morning. We are skeptical of the bull argument that China is poised to loosen Covid restrictions, particularly after a significant increase in new cases yesterday. However, it is possible that enough time has passed since the Chinese leadership meeting for the government to back away from the restrictions without implication. Copper should find some support from news that Chinese January through October copper concentrate and ore imports increased by 8.4% from year ago levels. Also, January through October Chinese unwrought copper imports increased by 8.8%. LME copper warehouse stocks fell 1,475 tonnes today for the 12th straight daily decline. LME stocks are down 54,250 tonnes over that timeframe and have fallen to their lowest level since March 29.

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