PALLADIUM / PLATINUM
With the palladium market showing almost no sustained benefit from the recent improvement in global economic psychology, it is clear the market remains out of favor. In fact, broad based risk on sentiment, improved global economic prospects and a loosening of Chinese travel restrictions resulted in a moderate decline in palladium prices yesterday. We continue to see the palladium market as a “sideline market” with trading volume low and more definitive trend action residing in the platinum market. On the other hand, with the net spec and fund short position in palladium, it is possible that the palladium market will see selling moderate on retests and temporary failures of the $1,700 level. While we expect the uptrend in platinum to continue at the expense of palladium prices, the market is significantly overbought and vulnerable to significant corrective action.
GOLD / SILVER
Obviously, the gold market is short-term overbought but is impressively holding recent gains despite a corrective environment in commodities and equities this morning! While gold is short term overbought, the market has fully embraced a wave of bullish fundamental themes over the last three sessions. Bullish fundamentals for gold and silver include increased chatter of a Fed pivot, prospects of significant weakness in the Dollar (because of a Fed pivot) and a noted improvement in economic views toward the Chinese economy from lessening of travel restrictions. Another very bullish development was presented to the gold trade yesterday in the form of Chinese central bank confirmation of gold purchases in November and December. Certainly, the gold market is short-term overbought and has encountered the top of the uptrend channel resistance line from the September through present rally, but fundamentals have shifted into the most positive standing in several years! Like the equity markets, the gold market might continue to rally until the US CPI report is released on Thursday. Given the recent gains gold has certainly embraced a portion of the hope for a pivot from the Fed and therefore the speech today will be parsed for any sign from the Fed that they have made progress on inflation. In the silver market, prices have clearly diverged with gold over the last 5 trading sessions, but silver is sitting on uptrend channel line support while the gold market sits at the top of its uptrend channel. Hopefully for the bull camp, a continuation of the uptrend patterns will entice investors to enter silver and gold ETF instruments.
Clearly, the copper market is short-term overbought with the veritable explosion of the last 4 trading sessions as news of a significant jump in new Chinese loans for December failed to push copper prices into higher highs this morning. It should be noted that Chinese iron ore prices rallied overnight from market talk that the Chinese Covid infection wave is “passing its peak”. While the threat of a sudden deterioration in Chinese economic prospects remains in place because of massive Covid infections, the copper market yesterday was clearly cheered by news that the Chinese government was reducing travel restrictions. It should be noted that the net spec and fund long in copper before the recent rally showed a relatively flat positioning and that might reduce the magnitude of the short-term overbought condition corrective action from recent aggressive gains. On the other hand, the bull camp should draft fresh confidence from a 2023 forecast predicting ongoing tightness in copper supply from a significant reduction in European scrap copper recovery. On the other hand, given Chinese attempts to clean their air in industrial production areas, Chinese interest in foreign scrap supply might be limited this year.
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