Mixed outlook with gold bulls heavily reliant on $ weakness
GOLD / SILVER
Therallies in gold and silver on Wednesday were very impressive, especially withthe dollar not making a fresh low for the week. However, it should be notedthat the Dollar Index did make a new low for the week overnight and hit itslowest level since September 28. It is also possible that inflationary dialoguefrom legendary investor Paul Tudor Jones prompted buying of both gold andsilver yesterday. According to Jones, the Fed needs to act now, or it ispossible that inflation sentiment will become unanchored and that if the Fedgets behind the inflation curve it could result in surging inflation. Jonesalso suggested that if the Fed gets caught removing the punch bowl too late,they may be forced to act much more aggressively than they would have liked.Jones also suggested he sees Bitcoin as a viable instrument and suggested thatit has won the near-term battle with gold as an inflation hedge. On the otherhand, the dollar looks vulnerable to lower action ahead. The US daily infectioncount registered its lowest weekday infection rate since July 20 on Monday,which result in even more flight to quality premium being removed from thegreenback. Given all the fits and starts of the gold market and its inabilityto build on gains, it needs to prove itself a hot commodity with the trade above$1,802. Silver looks significantly more powerful on its charts than gold. Whilesilver will likely see support from a softer dollar and higher gold prices, itcould also rally without assistance from those markets, as it could findsupport from its role as a classic physical commodity facing increased demand.On the other hand, it should be noted that silver ETF holdings have seensignificant outflows recently in the face of significant futures price gains.
PGM
ThePGM markets showed significant divergence yesterday, with platinum strong andpalladium weak. The palladium market was undermined by news that RussianNorilsk estimated that its third quarter palladium output increased 9% from thesecond quarter. Anglo-American Platinum LTD overnight indicated that refinedPGM production and sales volumes were likely to be unchanged from their initialoutlook of 4.825 million ounces, which leaves the supply condition neutral toslightly negative. Traders should remember that the most recent positioningreport showed palladium having a near-record spec and fund net short level.Which should discourage aggressive selling. Critical support in Decemberpalladium is seen at $2,005 with the top of the range pegged at $2,205.Platinum market tracked positive yesterday but remained within a recent tighttrading range defined by $1,064.20 and $1,034.80. The positioning report showedplatinum with a spec and fund net long of 17,757 contracts, which is 60,000contracts below the record high from January 2020. Therefore, the platinummarket retains significant buying capacity but lacks the fundamental story tobreakout and run higher.
MARKETIDEAS: While the bias is up in gold and silver, the markets have a poortrack record of extending gains over several days. However, a very low US dailyinfection rate for Monday followed up by another low reading on Tuesday ispressuring the dollar, and that could ignite a wave of currency-related buyingin the metals later today. The gold market's spec and fund net long position isonly half of its record high spec, indicating the market retains plenty ofspeculative buying capacity. We see the gold market proceeding to the top ofthe trading range up at $1,801.90 and December silver extending on the upsideto $24.90.
COPPER COMMENTARYKey junction shortsqueeze of key top?
The main storyoperating in the trade is the potential that the London Metals Exchange may nothave enough copper in warehouses to meet warrant/delivery commitments. With a6,100-tonne decline in warehouse stocks overnight, they have fallen to theirlowest level since May 2009. With a massive 15.5-cent trading range onWednesday and a firm close (the highest since May 11), the bull camp looks likeit has regained control. In addition to strength in other inflationarycommodities like crude oil, precious metal, and grain prices, the copper marketlikely benefited yesterday from new all-time highs in various US equity marketmeasures. While the International Copper Study Group pegged the world refinedcopper market in July to be holding a 31,000-tonne deficit, they also peggedthe January through July deficit to be 138,000 tonnes, and those deficit readingsmight have ignited bargain-hunting buying around the lows yesterday. In a veryminor bullish development, the US government has apparently moved to block acopper/nickel mine in Minnesota. From a technical perspective, the Octoberrally in December copper has seen a dramatic increase in open interest, whichmight suggest new record highs are in store. However, in the event of newrecord highs, traders should be on the lookout for a fresh Chinese strategiccopper stockpile sale.
MARKET IDEAS: The bias is up, but the risk to longs is quitesubstantial with prices sitting nearly $0.74 above the October lows andseemingly stalling with a series of closes below the $4.75 level. However, LMEcopper exchange stocks continue to decline, and there are reports that a verylarge portion of copper on warrant at the exchange is held by a single entity,which could facilitate a short squeeze. If that happens, prices could quicklyshoot through all-time highs.
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