Gold Responds to Inflationary Signals

Pushed into the market we favor the short side today

GOLD / SILVER

While gold did not make a higher high early today, the market nearly matched yesterday’s high and favors the upper end of the last two weeks trading range in the early Tuesday trade. A single day does not make a trend, but gold and silver for the first time in a long time responded positively to inflationary signals flowing from surging energy prices.

PALLADIUM / PLATINUM

With the outlook for the auto sector improving slightly following comments from the GM CEO (she sees 4th quarter production to stabilize), a pattern of higher lows developing and positive equity market action, the near-term track in palladium is pointing upward. Furthermore, palladium recently held its largest ever net spec and fund “short” and in a thinly traded market, a major reversal from stop loss buying could take place even without a distinct shift in market fundamentals. With platinum somewhat tied to palladium price action and platinum significantly cheaper than palladium, platinum could be seen by investors as more attractive than palladium if inflationary fears become entrenched in daily market action.

COPPER

For the most part, we see yesterday’s rally in copper as a short covering rally as the gains were forged in the face of a Chinese holiday and took place before the US posted a stronger than expected Factory Orders result. On the other hand, the trade saw signs of lower production from several of the world’s largest copper mines in Chile and therefore supply could have been behind the move higher yesterday.