GOLD / SILVER
The technical path of least resistance is down in gold with a series of lower highs and lower lows presenting bearish charts. We also see the fundamental bias pointing down in gold and silver as a muted US CPI reading fosters a thin measure of long liquidation from long suffering gold inflation bulls. However, the bull camp hopes that muted inflation will spark talk of the end of the rate hike cycle and potentially provide a measure of misguided buying off talk of rate “cuts” next year. Unfortunately for the bull camp moderating inflation could result in a return to a steepening of the yield curve as interest rate markets drift back toward more normal historical relationships. Expectations for of a pause by the US Fed in the December 13th meeting remain very lofty at 85.7% this morning and with Spanish inflation readings overnight soft there will be a market debate over bullish fed policy versus the end of inflation. However, the dollar continued to weaken overnight with the trade potentially anticipating a slide in the dollar following the US CPI report.
COPPER
While the chart action depicts a bullish tilt and the rejection of the new low for the move yesterday adds to the bullish technical condition, the copper market displayed a lack of definitive bullish fundamental sentiment in the wake of a new $137bn Chinese aid package aimed at helping the Chinese housing sector. The government is expected to place these new funds into their ‘Pledged Supplemental Lending’ account. This account already has $400bn and is considered as ‘helicopter money’ by many. This Chinese announcement comes as Asia Copper Week gets underway in Shanghai. China has seen a large rise in domestic copper production this year, causing global copper traders to worry about softening Chinese imports. Codelco’s chairman has been sounding the alarm that the world’s largest exporter of copper is seeing less demand from China as domestic production increases. This could eventually push prices lower as we have already seen victims of this shift away from copper imports into China. While the precious metal markets might not benefit from signs US inflation is under control, we suspect copper will temporarily benefit and could temporarily track higher off lower dollar action and positive US equity market psychology. Technical signals are supportive with copper prices closing above their 5-day moving average yesterday and yesterday’s recovery extended with an early higher high today. In the most recent COT positioning report the net spec and fund short in copper remained very modest, but the failure to sustain yesterday’s downside breakout might have fostered a temporary short covering buying wave. While not as direct of an impact as in the gold market, today’s global inflation reports could set the tone of the copper market for the rest of the week.
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