Written Commentary
GOLD / SILVER
While gains this morning are not significant in gold, the market has managed to maintain positive traction despite modest EARLY strength in the dollar. However, US treasury rates have posted a lower low in yield, with the lowest yield registered since August 15th. Unfortunately for the bull camp, gold ETF holdings fell by a significant 163,346 ounces yesterday pushing year-to-date sales to 4.1%. In another negative demand development overnight, Chinese net gold imports through Hong Kong declined 26% last month with overall Chinese net imports AT 25.7 metric tons compared to 34.6 in the previous month. While the gold and silver trade will react to US claims readings this morning, their reaction will be a reaction to treasury and dollar action. However, shortly after the initial US data window, the Fed symposium in Jackson Hole will kick off and given the massive washout in treasury bonds the markets today will be more sensitive than usual to dovish dialogue. It should be noted that the Fed chairman will not speak until Friday. Clearly, two very powerful bullish outside market forces combined to lift precious metal prices with the dollar aggressively rejecting/reversing a new high for the move and US treasury rates plummeting by the most significant amount since early March. Certainly, traders have reduced their fear of Fed tightening following weakness in US PMI data, which in turn prompted an increase in the probability of a pause in rates next month. While there are many potential flight to quality themes capable of lifting gold and silver by the magnitude seen on Wednesday, at this time we do not sense the markets are being driven by uncertainty regarding the Chinese economy, the US government, or the potential of a US government debt ceiling inspired shut down.
PLATINUM / PALLADIUM
The platinum market followed gold and silver prices higher yesterday in what can only be described as an outside market/macroeconomic event. In other words, we did not see specific bullish supply and demand forces driving buyers into position, and instead we saw spillover buying from gold and silver combined with speculative buying from a sharp decline in US treasury yields. Therefore, US economic data this morning and dialogue from the Fed symposium is likely to provide a fresh outside market reaction which at this hour looks to favor the bull camp. However, it could take further straightaway and sustained declines in US interest rates to reduce surging car and home loan rates. With the palladium market begrudgingly tracking higher with the rest of the precious metal complex yesterday, it is apparent speculators have little interest, perhaps because the fundamental case in palladium has been stagnant for months. The bias is up, but the fundamental bull case is not apparent.
COPPER
We are somewhat incredulous with the strength of copper prices this week with the economic news flow from China this week disconcerting. However, yesterday the Chinese floated anecdotal predictions of improved Chinese copper demand from projections of expanding industrial activity reliant on base metals. Apparently, the positive Chinese copper demand storyline has been extended again overnight but the basis those predictions are obscure. Furthermore, global demand news has been disappointing for the bull camp with European and US PMI data clearly negative demand signals. Other headwinds to the bull track in copper are inflows to LME copper house inventories and higher copper production from KGHM. Apparently, the Polish copper producer saw a 4% increase in July production and higher first half production. Obviously, a strong setback in the US interest rates and an aggressive reversal in the dollar provides enough positive forces but we are highly skeptical of a sustained rally in prices.
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