Post Fed announcement declines likely but perhaps temporary
GOLD / SILVER
Thebroad market environment today favors the bear camp in gold and silver, withthe negative economic comments from China pressuring many commodities.Apparently, China's Premier has warned of new downward pressures on the Chineseeconomy which some economists suggest could be the result of China fightinginflation by restricting output and potentially reducing commodity demand. Notsurprisingly, the upside breakout Monday in the December Dollar Index knockedgold sharply lower. The focus of the gold and silver trade yesterday was on theUS dollar, as a significant bounce in around 9 AM CDT resulted in gold forginga loss of $7 in less than 10 minutes. Silver experienced a 10-minute slide of$0.22. While gold and silver have experienced only fleeting inflationary liftrecently, seeing China warn against downward pressures in their economy takes abite out of the inflation story. Silver ETFs fell precipitously yesterday by1.6 million ounces leaving, the year-to-date gain down at a mere 2%. Gold ETFholdings declined by 17,000 and are now 8.3% lower on the year. As if the bullcamp did not have enough worries, the FOMC meeting ends today and with what isexpected to be announcement of the beginning of tapering. In short, thetemporary flare in gold and silver prices on Monday (from an inflationary waveof buying throughout commodities) has been lost, and it is likely thatinflation will be dealt a more serious but temporary blow by the statementsfrom the US Federal Reserve this afternoon. After seeing December gold rallyabove its 200-day moving average on October 22, 25, 26, 27, 28, and 29, thebull camp could be concerned about its inability to hold above that line. Itcomes int today $1,796.90. We suggest traders exit longs and look to reset on apost-Fed tapering announcement dip to $1,750. December silver did post anoutside day up on Monday, but the charts collapsed Tuesday, and they haveextended lower today, leaving it at its lowest level since October 19. Decembersilver is undermined by Chinese growth warnings, periodic strength in theDollar, softer energy, and weakness in gold. It could be on a track to retest$23.00.
PGM
Whilesubstitution with the new materials in auto catalysts is a long way off, newsthat BASF was developing a "tri-metal" substitute for palladium toreduce the global deficit contributed some bearishness to the equationyesterday. We see outside market influences impacting palladium today, especiallyif the US Federal Reserve announces it will start tapering this month. However,palladium is $1,000 lower from its May high, so it may not be as negativelyaffected by the news as other commodity markets. Nonetheless, a risk-offenvironment (if there is a tapering tantrum) will make it difficult forpalladium to hold above recent consolidation low support at $1,972. Even thebeleaguered platinum market forged a big range up move Monday, and that actionwas probably not short covering, as platinum was holding a spec and fund netlong of 22,487 contracts in last week's report. To turn the tide in favor ofthe bull camp, it could require several closes above the $1,050 level.
MARKETIDEAS: Even if gold and silver manage to avoid significant losses today,we suspect there will be a period of concentrated selling and significantdeclines. Gold already sits $30 below last week's high, so the amount ofknock-on selling could be less than feared. The 200-day moving average hasbecome a layer of resistance and will likely be a pivot point into the closetoday at $1,796.90. We suggest traders exit longs and look to reset on a postFed tapering announcement dip to $1,750. December silver posted an outside dayup on Monday, but the charts collapsed yesterday, and prices are underadditional pressure this morning and appear to be on a track to retest $23.00.
COPPER
Vulnerablestatus from Chinese downward pressure comments
Overnight,the trade suggested that copper has recovered off the tightening of globalcopper exchange warehouse stocks. However, the streak of daily LME stockdeclines was broken in London this morning with a gain of 2,550 tonnes!Therefore, the streak of daily declines ends at 25 days and with stocksdeclining in 31 out of the last 32 days. The market should have been underminedovernight by comments from a top Chinese official suggesting the potential fordownward pressure on the economy from the energy crisis and inflation. Giventhe copper market's intense focus on "all things China," the warningof threats against growth should have pushed copper into new lows for the move.However, a Chinese services PMI reading for October released overnight showed again over the prior month and more than three points above expectations, andthat has probably provided the bull camp with control. Copper could also beundermined because of today's FOMC meeting, which is expected to announce thebeginning of tapering. On the other hand, the chart action suggests that someform of solid value was discovered around this week's lows at $4.3325.
MARKETIDEAS: While the initial bias appears to have shifted upward, we arehighly skeptical of the copper market's ability to make it past today's US Fedmeeting without some concentrated selling pressure. The bias remains down, butsupport has begun to build around the $4.3285 level. Today is a criticalmacroeconomic day, with the US Fed widely expected to provide negativeheadlines for commodities like copper.
By The Hightower ReportContributing tokitco.com
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mark@hightowerreport.comwww.hightowerreport.com