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Inflationary Feel to Early Price Action

GOLD / SILVER

With gold ETFs reducing holdings for a 7th straight session yesterday, crude oil nearing $80, a dollar higher, interest rates ticking upward and the inability to bounce notably from the $1750 level on the charts, leaves the bear camp with the edge today. However, there is an inflationary feel to early commodity price action and many physical markets are heartened by the return of China from holiday.

PALLADIUM / PLATINUM

The palladium market sprang to life yesterday and added to that strength with a higher high today. The strength yesterday was likely from the sudden and dominating risk on vibe flowing from equities with the strength this morning possibly the result of a much stronger than expected Chinese Services PMI reading, which jumped deeper into the growth zone last month. The platinum market did not benefit as much as the palladium market from the large upside explosion in US equities yesterday, but we suspect it will benefit from improved hope for physical demand for all commodities.

COPPER

We suspect that copper is enjoying some buying from the return of China to the markets, but it is equally likely that the market is being lifted by an ongoing pattern of significant declines in Shanghai copper and LME exchange warehouse stocks of copper. Looking at LME and Shanghai copper stocks, supplies backing up futures markets are at extremely tight levels.

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