GOLD / SILVER
With the upside breakout in gold prices today, the market should attract positive headline coverage, especially with growing hope for soft landings surfacing from economists on both sides of the Atlantic. Apparently, the gold and silver markets have become more patient with significant gyrations in the US Dollar seemingly resulting in a return to the down trend status in place prior to the recovery last week. Clearly, several US financial markets at the end of last week took the US jobs data and have begun to look for a case to bring the Fed to a less hawkish stance. In our opinion, the jobs data Friday, and data over the last several weeks have been “Goldilocks data” which for equities, gold, treasuries, and many physical commodities could be the best overall market condition for the coming quarter. With gold and silver price strength extending into a third month and positive inflows to gold and silver ETFs at the end of last week, perhaps investors will be attracted to the sector. In yet another potential major bullish development signs of increased central bank gold buying are surfacing and extending a developing pattern of buying with reports overnight that the Peoples Bank of China bought 30 tons of gold last month after purchasing 32 tons in the month of November. As indicated by the IMF back in the 4th quarter of 2022, central bank gold activity can be delayed in reporting with many central bank purchases not confirmed until months and quarters after the fact. Furthermore, with many other markets displaying “chop” seeing the gold market reach the highest level since June and seeing the silver market last week fill a series of gaps from last April, that should create some bullish buzz. Unfortunately for the bull camp, the gold and silver bulls are likely to need consistent support from a weaker dollar and steady to lower US treasury yields.
PALLADIUM / PLATINUM
While the palladium market bounced from consolidation support levels just above the $1,700 level last week, the market continues to face neutral to bearish fundamentals. Furthermore, it seems that 2023 will bring about the rotation of industrial demand from expensive palladium to cheaper platinum. Therefore, we expect palladium and platinum prices to see their spread narrow consistently over the coming quarters. While only a minimally supportive influence, the palladium market holds a net spec and fund short which could discourage long liquidation. As indicated several times this year, platinum has displayed very impressive action on its charts since last September and has significantly outperformed palladium on the upside. Therefore, the markets might be seeing or anticipating substitution of palladium with platinum. Furthermore, given the extreme discount of platinum to palladium, we suspect an increase in flows into PGM ETFs will favor platinum.
Not only has the copper market managed to hold up impressively in the face of what continues to be a major threat against Chinese copper demand, it has now jumped to the highest levels since the middle of June in a fashion that suggests the trade has somehow become comfortable with Covid uncertainty. Certainly, the bulls were inspired by news last week that the Chinese government was aiding the beleaguered Chinese real estate sector. However, economic sentiment in China has been improved further this morning with reports of Chinese travelers flooding airports following the government’s lifting of certain travel restrictions. Obviously, copper will continue to benefit from supportive outside market influences like a weaker dollar, steady interest rates and from recent “Goldilocks” US jobs data. In fact, several economists have predicted increased potential for soft landings in the US and European economies and that certainly helps stoke optimism toward copper consumption. Therefore, Chinese copper and copper concentrate imports are likely to support prices ahead especially given the overall extreme tightness of supply in Chinese exchange stocks and industrial stockpiles.
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