Palladium Prices Pulled Lower

PLATINUM / PALLADIUM

While we are hesitant to suggest the $1050 level has become a form of strong value, the market has extended the recovery bounce early today and platinum ETF holdings posted another modest gain of 1005 ounces yesterday pushing the year-to-date gain back up to 6.8%. Clearly, the platinum market initially rejected and or discounted a 10% decline in 3rd quarter platinum production from South African mining company Impala, but that news should rekindle prospects of a world deficit and potentially rekindle the February through early April rally. Not surprisingly, the loss of refined output from the South African company was the result of sustained and worsening power outages. In the near-term, fear of slumping demand could overshadow expectations of incremental losses of production. Logically, noted weakness in platinum prices yesterday served to drag palladium prices lower with both markets moving to factor in deteriorating industrial demand prospects. However, palladium has continued lower this morning in a sign it remains ultra-sensitive to the threat of softer physical global demand. In conclusion, bearishness toward palladium futures remains in place while bullishness continues to surface from investors.

GOLD / SILVER

With the dollar forging a 3-day low early today the gold trade looks to have a modest cushion against the prospects of selling from official confirmation of a US rate hike later today. At times yesterday, gold and silver prices diverged with gold remaining consistently in favor in a possible sign of entrenched flight to quality interest from both economic and political uncertainty. In fact, news that Iran has seized an oil tanker in the Straits of Hormuz adds an additional measure of political uncertainty to the gold trade today. Gold and to a lesser degree silver might have seen pressure yesterday from news of a scheduled meeting between the White House and top legislators net Tuesday, but with the President indicating he will not negotiate a debt ceiling in the meeting, flight to quality uncertainty from the budget situation should remain in place. With both the gold and silver charts shifting positively with yesterday’s sharp range up moves, the gold trade seems to be capable of looking beyond the negatives of a 25-basis point rate hike this afternoon to the prospects of an on-hold Fed. While anxieties from two days of significant declines in US regional bank shares seemingly mitigated by higher global equity market action overnight, the fear of further bank failures is tamped down but not forgotten. On the other hand, the fear of recession in the US remains front and center which gives added importance to today’s ADP employment change and to the ISM services employment index reading for April.

COPPER

In retrospect, economic news flow from China has been disappointing, economic signals from the US and Europe have been concerning and the Fed is likely to add to the bear case in copper today with another widely anticipated rate hike. It should also be noted that daily LME copper warehouse stocks posted a 9th straight daily build today, they are up 11 of the past 12 sessions and are at the highest levels in nearly 30 days. However, the world’s largest copper producing company yesterday showed a decline in first quarter profits of 73%, with that contraction largely the result of a 10.4% decline in production from year ago levels. While fear of a slowing global economy has returned to a front and center position this week that vibe is somewhat moderated this morning by better global equity market action. Unfortunately, big picture macroeconomic forces are likely to remain bearish today with a widely anticipated US interest rate hike discouraging commodity buyers. With ongoing holidays in Asia (Golden week) and a pattern of noted daily inflows to LME copper warehouses, the bear camp should be confident from a demand perspective.

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