Gold Awaits CPI Report Release

GOLD / SILVER

While gold spent nearly the entire Monday trade in positive territory, it forged a much tighter trading range relative to the action last week, perhaps because the trade is looking ahead to the uncertainty of the US CPI report on Wednesday morning. However, a portion of the trade sees the US CPI report as potentially supportive of the idea that consumer inflation will remain elevated. The gold market is likely seeing pressure from disappointing Chinese commodity import data this morning which has fostered a risk off view toward many physical commodities. On the other hand, Chinese exports increased last month which should provide stimulus to that economy going forward. An issue that could provide fresh flight to quality buying in gold today, is a debt ceiling meeting at the White House as we expect the meeting to yield a quick stalemate as the President has made it clear he will not negotiate. In today’s action gold should see minimal residual support from the 85,362-ounce inflow to gold ETF holdings yesterday but holdings year-to-date are nearly flat. Unfortunately for the bull camp in silver, ETF holdings saw an outflow yesterday of 1.3 million ounces, leaving the year-to-date change in holdings at zero. While the silver market spent a large portion of the Monday trade in negative territory, the market basically held near the Friday close which represented the middle of a very wide $1.02 daily trading range. Therefore, silver posted a significant setback and aggressively rejected a large portion of the washout potentially indicating value above $25.41. Despite the divergence in gold and silver prices on Monday, we think silver will correlate tighter with gold in the coming 72 hours.

PLATINUM / PALLADIUM

In retrospect, the 3-day low to high recovery in July platinum of $50 per ounce is partially justified by the noted improvement in global economic sentiment following the US jobs report last week. However, soft Chinese commodity import readings overnight has resulted in demand concerns for commodities in general, despite the improvement in Chinese export activity. Unfortunately for the bull camp platinum ETF holdings yesterday fell by a very material 6,132 ounces reducing the year-to-date gain to 6.3%. While we expect platinum to correlate with gold in the coming trading sessions, weak Chinese economic signals from their monthly trade report could allow physical commodity demand fears an edge over precious metal/flight to quality influences on platinum.

COPPER

We give the edge to the bear camp today in copper as the trade overnight was disappointed with overall Chinese physical commodity import data. While Chinese January through April unwrought copper imports fell 12.6% versus year ago levels, January through April copper concentrate and copper ore imports increased by 6.7%. In an ongoing negative and slowly expanding bearish situation, LME copper warehouse stocks continue to extend a very long daily string of inflows which might be indicating soft demand for copper outside of China. Fortunately for the bull camp, the decline in Shanghai copper warehouse stocks released last Friday was the 10th straight weekly decline with the amount of copper left in the Shanghai copper exchange warehouse system now only 3 days of Chinese consumption. Like other physical commodities the copper trade could see some slight pressure when the White House debt ceiling meeting adjourns this morning with absolutely no progress.

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