GOLD / SILVER
With a sharp range down extension in April gold putting prices to the lowest level since the end of December, the gold market has seen the largest reaction of most financial markets to the US CPI release yesterday. Apparently, gold and silver traders are concerned about the prospect of higher interest rates and slowing physical and investment demand. However, gold should be undermined following news overnight from Indian Trade officials that India gold imports in the April through January timeframe declined. The market should also be undermined following news that Gold Fields LTD projected its 2022 production to rise 3% over 2021. As expected, December gold displayed significant post CPI report volatility with a high to low 1-hour range of $31 with the bias eventually shaking out in favor of the bear camp. Therefore, we think the recent correction in gold will extend, especially with Federal Reserve commentary indicating the CPI result will likely result in a higher-than-expected terminal interest rate level. The silver market through the CPI report carved out a smaller relative range than gold of $0.43 right after the CPI release and ended the action yesterday with slightly less bearish charts than the gold market. Unfortunately for the bull camp, the silver charts have posted significant damage this morning with a range down move to the lowest price since November 30th. Obviously, the CPI report has generated fears of higher and or longer US interest rate hikes which in turn is expected to provide economic headwinds to the world’s largest economy. Therefore, as predicted by the Silver Institute several weeks ago, the silver market is facing demand headwinds well into the first quarter of 2023. However, a lack of financial market consensus on the meaning of the CPI result has allowed the bear camp to partially win by default. Given gold and silver reactions to CPI, we expect a smaller bearish PPI reaction on Thursday and then we might find reliable lows in gold and silver.
PALLADIUM / PLATINUM
Clearly, the platinum market sees demand headwinds from US rate hike fears and given downside follow-through damage on the charts this morning the bear camp should retain control. While we have not had updated COT positioning reports for several weeks, the last positioning reading in platinum was as of January 24th with a net long of 25,891 contracts. Therefore, we see further liquidation action in platinum ahead. As we indicated yesterday morning, the palladium market was vulnerable to a range down washout, and we suspect more range down action will follow. Clearly, the washout this week has been aggressive, and with the extension down overnight palladium has traded to the lowest level since August 26th, 2019. Yesterday palladium ETF holdings declined by a minuscule 3 ounces but remain 4% higher year-to-date.
In retrospect, the copper market not only respected consolidation low support at $4.00 yesterday, but it also managed to post a 3-day high in the face of a risk off wave following a jump in US rate hike fears. However, the negative headwinds flowing from the US inflation battle are significantly countervailed by signs the Peoples Bank of China is injecting liquidity into their system to meet surging loan demand. As is usually the case, Chinese fundamentals trump US fundamentals in the copper trade. Unfortunately for the bull camp, LME copper warehouse stocks have seemingly reversed the entrenched pattern of outflows with 2 days of significant inflows, which could mean global exchange warehouse stocks are rising rapidly. While not a significant impact on copper prices in the near-term, news that Russian origin copper in LME copper warehouse stocks is 42% of total stocks, could result in a change in rules for Russian metal supply. It is possible that the attention to the amount of Russian copper in LME storage has rekindled talk of embargo an of Russian sourced copper and the Russians might be attempting to move as much supply as possible into the London exchange before any attempts to block the flow. On the other hand, if the exchange quickly moves to shut off the inflow of Russian copper, that could create a significant compacted supply inspired rally.
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