PALLADIUM / PLATINUM
While the platinum market managed to reject a major range down washout yesterday and closed in positive territory, the market remains very vulnerable to big picture macroeconomic impacts from financial markets today. Internally, fundamentals remain supportive with investment signs surfacing and platinum producers in South Africa warning of more production losses due to electricity problems. Yesterday platinum ETF holdings declined by 1,453 ounces with the year-to-date gain reduced to 1.9%. However, today’s platinum trade will likely track in sync with equity prices which in turn will take full direction from the interest rate markets. While we think the palladium market will see less outside/macro market impact today, residual bearish chart signals and the lack of bullish interest should leave the path of least resistance pointing down. Pushed into the market, we expect new lows again today.
GOLD / SILVER
Fortunately for gold bulls’ early action in the dollar is supportive with the Index sliding near 3 days lows. However, today’s US CPI report should be all encompassing for nearly all markets with a potential return to aggressive Fed action likely to be factored if CPI matches expectations. Expectations for the report call for a hot 0.5% increase which would be the highest reading since the June 2022 gain of 1.3%. While it is not a given, we think gold and silver will come under very aggressive liquidation if CPI hits expectations, as that in turn will likely rekindle fear of aggressive US Fed rate hike action. It is possible but not likely that gold and silver could launch higher with a very hot CPI reading, but that would require a full disconnect with the dollar and widespread belief that inflation might spiral out of control with higher rates unable to snuff out price pressures. Therefore, gold and silver are facing a very important fundamental junction today and we think an “as expected” CPI will press gold with an above-expected result likely to foster new lows for 2023. With a “hot” CPI result we see silver prices thrown down to $21.00. In conclusion, internal physical commodity market fundamentals will take a backseat today to big picture macroeconomic influences.
While the copper market has continued to build a shelf of support/consolidation around the $4.00 level, that support level will stand little chance of holding prices up this morning if the post CPI report action sparks aggressive risk off psychology in equities and many physical commodities. Certainly, threats against copper supply flow from South America is ongoing and the trade is accepting as fact a recovery in Chinese copper demand and that could cushion copper against a sharp washout following US CPI this morning. However, recent projections have pushed back the Chinese recovery in copper demand into the 2nd quarter and a report on Reuters yesterday indicated demand for scrap copper in the US is falling. As in many other physical commodity markets today, the copper trade will likely shift its focus away from internal copper market fundamentals and at least temporarily track with the overall direction of economic sentiment (best signaled by equity market action). On Monday LME copper stocks posted a 10th daily draw in a row, their 22nd draw in 23 sessions, and those stocks declined to the lowest level since October 2005. However, yesterday LME copper warehouse stocks increased by 1250 tons, with those stock levels attracting significant market interest following news that up to 42% of LME copper warehouse stocks are comprised of Russian origin copper. With the LME last year deciding “not” to ban Russian metal from entering the exchange trading system it is clear the Russians are taking full advantage of that source of currency flow.
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