Gold & Silver Vulnerable

GOLD / SILVER

Today could bring about a chain reaction from the US nonfarm payroll report as the focus of the markets remains on the direction of policy at the US federal reserve. Therefore, the bull camp in gold and silver will need soft data to undermine the dollar, lower treasury yields and began to build a case for the Fed to tap the brakes. However, yesterday the Kansas City Fed Pres. indicated that the Fed needs to do more to gain confidence that inflation is under control and the dollar index today has extended sharply on the upside to the highest level since December 7th and that should have resulted in gold and silver prices falling sharply again this morning. On the other hand, expectations for the US nonfarm payroll report are for a gain of only 200,000 jobs which would be the softest reading since January 2021. In a minimally supportive development, the Polish central bank governor indicated his country would like to expand gold reserves and we have already seen evidence from the World Gold Council and the IMF of continued net buying of gold by central bankers. The precious metal markets might also draft a minimal amount of support from Chinese government directed stimulus programs designed to cushion the economy. Looking forward, without a significant reversal in the dollar following today’s early data, both gold and silver are very vulnerable to further liquidation pressure.

PALLADIUM / PLATINUM

The most optimistic view we can construct for palladium is the ability to remain within the late December and early January trading range despite negative macroeconomic psychology flowing from the auto sector. A major negative for palladium and platinum came from December US light vehicle sales results from earlier this week which fell to 13.31 million annualized units from 14.2 million annualized units in November. It should also be noted that China has apparently pulled back on some EV subsidies forcing EV companies like Tesla to offer even deeper discounts on vehicles. If it were not for the very impressive late December early January rally of $137, the platinum market might not have corrected as aggressively from this week’s high. Going forward, the platinum market has displayed signs of a major top/reversal with the market gaining $1.37 in only 7 trading sessions. Furthermore, macroeconomic psychology remains bearish, and platinum might see further corrective selling today. On the other hand, today’s US nonfarm payroll report could offer a reprieve for the bull camp if the data is judged to be clearly weak.

COPPER

The Chinese government has clearly bailed out copper longs with easing curbs on property and developer borrowing at the same time they have “vowed” to boost domestic prospecting of strategic minerals and energies. Apparently, the Chinese government is also moving to relax what has been described as extremely stringent “3 red lines” policy that was directed at the Chinese real estate sector. Surprisingly, the copper market is trading higher this morning after news that Peruvian copper production rose 15.3% in November from year ago levels. While not a direct impact on prices the LME exchange chairman is stepping down because of the Nickel crisis. While daily Chinese infection numbers are highly suspect following the government’s decision to stop releasing the numbers, the World Health Organization yesterday indicated that new cases in the last 24 hours reached 37,017. In the end, we are surprised that talk of surging infections have not created significant economic anxiety in Chinese equity markets, global commodity markets and most specifically in copper.

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