GOLD / SILVER
Gains in the gold market this morning are surprising with the dollar level to yesterday’s close in the early action, US treasury yields signaling a minimal tick higher in yields and China deciding not to cut interest rates! Overnight internal supply news in gold was slightly bearish with one minor gold miner reporting higher production and another simply reconfirming their annual forecasted output. Apparently, gold traders continue to embrace the end of the rate hike cycle theme especially if this morning’s US claims data provides signs the US jobs market has lost the trend of consistently improving. With the gold market recently overbought from the late June to mid-July rally of $88, the dollar showing signs of extending this week’s recovery bounce and talk of a US Federal Reserve pause becoming a bit stale, a measure of additional back and fill in gold prices might be justified. However, today’s US initial claims report will likely have a significant impact on treasuries and the dollar which in turn means gold should be impacted by volatility. On the other hand, given the lackluster bullish response to soft US data yesterday, soft data today might not lift gold. From a technical perspective, gold is likely to become intermediate term overbought with gains. On the other hand, short-term technical indicators like RSI and stochastics are not overbought yet and suggest more modest gains are possible before chart signals turned bearish.
PLATINUM / PALLADIUM
While platinum ETF holdings declined by a noted 3,396 ounces yesterday (which is a 0.1% decline in total global holdings), positive sentiment from gold from unending hope of an end to global rate hikes, a doubling of Swiss PGM exports in June and a cut in Amplats 2nd quarter total PGM production to 943,000 ounces from 1.03 million ounces a year ago, provides the market with net bullish fundamental take aways this morning. Switzerland which is a major refining and trade hub for the worldwide distribution of PGM supply saw exports jump from 1154 kg in May to 2499 kg in June and that is the first concrete bullish classical fundamental development in months. The decline in production at Amplats was understandably the result of electric outages on 29 production days with platinum production declining 8.8% and palladium production declining by 9%. However, the recent threat against South African production combined with declining investment in platinum derivatives is likely result in more range trading. While platinum seems to be more sensitive to macroeconomic optimism than palladium, platinum has been unable to recover 30% of losses since the April highs despite a consistent risk-on environment. With the Chinese central bank deciding not to cut rates today, the spike high on Tuesday could become the top of the trading range in the week ahead.
COPPER
With a large and impressive range up extension this morning in the wake of “no action” from the Peoples Bank of China to support their economy, the magnitude of the copper rally this morning is potentially overdone. However overnight Australian bank analysts indicated ongoing short supply of copper gives copper significant upside potential when and if Chinese demand shows evidence of improving. However, the rally in Shanghai copper overnight was forged on higher trading volume and given signs of falling inflation in the UK, the market theme of a looming into the global rate hike cycle continues to favor the bull camp. Unfortunately for the bull camp, Chinese copper premiums softened overnight indicating weak physical copper consumption remains in place in the world’s most important copper consuming nation. While we do not intend to discount the importance of today’s US initial claims data, the copper trade has consistently showed its ultimate focus remains on China and the prospect of improving Chinese copper demand. Therefore, US macroeconomic information is likely to have only a temporary bullish impact.
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