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A Bearish Start For Metals


The gold and silver markets start off under moderate pressure this morning in a risk off commodity session tempered only by initial strength in US equities. Clearly, there will be no compromise short of a complete takeover of the Ukraine Therefore, uncertainty and volatility in gold and silver is likely to mirror the action seen last week which posted a gold range of $118. Countervailing flight to quality bullishness from the war will be fear of a surging US dollar and a US hike in interest rates later this week.


We see the palladium market as the physical commodity market most impacted by the war, and therefore this week should produce volatility on the order seen last week (a $720 trading range). Obviously, seeing 40% of the world supply of palladium held inside Russia for an extended period will result in significant supply chain disruptions for the global automotive industry and that could propel palladium prices to surprising levels. However, over the weekend Russia’s Nornickel indicated they have found “alternative routes for the export of their palladium supplies”. The platinum market will “follow” the palladium market and could see a distinct positive correlation with equities this week.


Unfortunately for the bull camp, copper is not a flight to quality instrument and this week’s geopolitical developments are likely to undermine copper prices and copper demand expectations. Other negatives include word late last week that Peru is likely to see significant year-over-year growth in copper production this year, ongoing moderate daily LME copper warehouse stock builds (+3,800 tons overnight), the potential for trade sanctions against China and obviously what is widely expected to be the beginning of a trend of higher interest rates.

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