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Dollar Threatens Gold

GOLD / SILVER

While the dollar remains below its multi-month high in the early action today, it appears to be poised to forge a higher high later today which will certainly threaten gold which is tracking moderately higher in the early going. Fortunately for the bull camp, US interest rates are showing a lower track early and commodities in general are showing positive action. However, gold continues to face bearish internal forces with gold ETF holdings reduced for the fifth straight session and UBS cutting its year end gold price forecast. Since the gold market has not shown consistent signs of reacting to flight to quality developments, the Chinese property sector travails are unlikely to provide a flare of buying unless there is evidence of a possible chain reaction of failures inside the Chinese property sector. Unfortunately for the bull camp in gold, both the dollar and treasury yields appear to have settled into uptrends which should leave gold prices on a negative track. It should also be noted that the world Gold Council earlier this week predicted softening Chinese gold jewelry demand and that combined with signs of slackening investment demand provides a lot of soft demand evidence.

Gold Bars and US Currency

PLATINUM / PALLADIUM

With a significant $29 trading range yesterday forged on a slight uptick in trading volume, the platinum trade may have found some value and in turn built a credible consolidation low support level of $884. However, the outlook for platinum demand from the auto sector continues to favor the bear camp and with the last COT positioning report in platinum showing a net spec and fund long of 8,437 contracts in a market with a daily trading volume of only 20,000 contracts, the market remains vulnerable to long liquidation selling. While platinum ETF holdings were steady overnight, recent outflows highlight an ongoing lack of investment interest. As indicated already, auto catalyst demand looks to remain poor especially with the Chinese economy teetering on a cliff because of a beleaguered property sector. While palladium ETF holdings have not shown the outflows seen in gold, silver, and platinum the lack of daily activity in holdings highlights a lack of investor interest. However, adjusted into the lows yesterday we suspect palladium holds the largest ever net spec and fund short and combined with the 39 days of consolidation support respect of the $1,200 level, the risk of selling palladium at current levels is very significant.

COPPER

With LME copper warehouse stocks rising for 9 consecutive sessions and rising 23 times out of the last 26 days, the bull camp is fortunate that Shanghai copper warehouse stocks fell by 25.9% on a week over week basis. In fact, Chinese inventories of copper at the Shanghai futures exchange and bonded warehouses are currently 63% below year ago levels and according to Reuters are equal to less than 3 days of Chinese consumption. Unfortunately for the bull camp, tight Chinese internal supply is less critical in the face of fear of an economic relapse brought on by trouble in their property sector. In our opinion, Chinese injections of liquidity to their financial markets are more of a cushion or stabilizing effort than a stimulus for the economy thereby leaving Chinese copper demand concerns front and center.

 

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