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Bullish gold forces are numerous and intensifying

Commentaries & Views

OUTSIDE MARKET DEVELOPMENTS: Global equity markets overnight were mixed, with Shanghai managing gains in excess of 2%, European stocks up fractionally, and Japanese Australia and German equities tracking lower. Overnight data included a slightly smaller than expected contraction in UK shop prices in June, a deflationary consumer price index reading from Australia, a stronger-than-expected jump in German import prices on a month over month basis, a weaker than expected French consumer confidence reading, a Spanish retail sales reading for June that contracted but was not as weak as expected, and a stronger than expected Swiss ZEW expectations survey for July. The North American session will start out with a weekly private survey on mortgage applications, followed by the June goods trade balance that is expected to have a modest downtick from May's $74.3 billion deficit. June wholesale inventories are forecast to have a moderate uptick from May's -1.2% reading. The June pending home sales report is expected to have a sizable downtick from May's 44.3% reading. The Federal Open Market Committee's latest monetary policy meeting is not expected to have any changes to rates or policy, but post-meeting comments from Fed Chair Powell will be scrutinized for clues on upcoming policy moves. Earnings announcements will include Shopify, Boeing, Anthem, Enbridge, ADP, CME Group and General Electric before the Wall Street opening while PayPal, QUALCOMM and Archer-Daniels Midland report after the close.

GOLD / SILVER

While some traders are beginning to express concern over the overbought technical condition of gold  with short-term technical measures flashing extreme readings, press coverage has been so intense that additional buying interest should not be difficult to find. Gold ETFs added to their holdings for a 23rd straight day with the purchase of 562,489 ounces, the largest daily inflow since June 19. It should also be noted that silver ETF holdings increase by 2.17 million ounces, bringing net purchases for the year to 260.7 million ounces! While the markets are certainly hopeful of additional support from the FOMC at the culmination of its two-day meeting later today, the Fed earlier this week extended its emergency lending program through the end of the year, so we expect the impact to remain positive through today. A slightly negative development was seen overnight as China regulators were looking into ways to quell excess speculation in Shanghai gold trading, but that news was offset by the fact that Hong Kong exports of gold to mainland China jumped back after recent dormancy. With Goldman Sachs revising their gold price forecast 12 months out up by $300 per ounce, the real yield on 10-Year Notes closing at its lowest level ever, and the dollar making another new low, the bull camp has a long list of arguments for more gains today. While it is difficult to ascertain uptrend channel support in a market near all-time highs, we see December gold support today at $1,939.85. The explosion in volatility in the silver market has been surprising, but traders should expect more of the same ahead as, silver longs might have entered in significant numbers between $21.75 and $23.75. This could make price action around those pivot points severe. After a decline on Monday, silver ETF holdings jumped again yesterday. The market continues to see headlines projecting significantly higher prices and projections that it will outperform gold. We see critical buying support in September silver at $23.67 and then again at $23.42.

PGM

While the palladium market is showing some corrective action early today, the market should draft some support from news that ETF holdings increased for a fifth straight session and from strength in gold and silver and the latest new low for the move in the dollar. Like gold and silver, the PGM markets have seen a growing number of bullish forecasts in the press, with Citibank yesterday pegging its palladium price forecast at $2,500 into the fourth quarter. Apparently, Citibank thinks that palladium will see a lift from improved auto catalyst demand, which is a little surprising considering the stumbling of the US recovery. Unfortunately for the bull camp, investors have not shown up in significant numbers yet with respect to ETF instruments, as holdings are 22% down year-to-date. Critical support in September palladium today is seen at $2,288. The platinum market has seen signs of increased ETF interest with a fifth straight day of inflows and year to date purchases up 1.4%, but speculators already had a moderately large net long position in place as of last Tuesday, and that position has likely grown considerable since then. We see critical support in October platinum at $964.40 today, and we leave the edge with the bull camp as the chart suggests an upside breakout will be seen today.

MARKET IDEAS: The trends in gold and platinum remain up, while silver and palladium are slightly more difficult to ascertain. Certainly the warning of intense volatility in silver remains in place, but gold continues to have a long list of bullish themes, with many of them becoming more intense. We see the next resistance/targeting level in December gold at $2,011, with likely support down at this week's double low of $1,927.50. The silver market yesterday (in both Shanghai and the US) forged the widest trading range in recent trading memory, and prices clearly lagged behind the surging gold market. Critical pivot point support in September silver today is seen at $22.95 with a key failure seen with a trade below $24.01.

COPPER

Big picture global sentiment continues to limit prices

The copper market was presented with impressive "V Bottom" descriptions of the Chinese recovery, but other analysts indicate that China might be losing momentum. Nonetheless the market is likely to draft support from another daily decline in LME copper warehouse stocks (the 31st straight drop), weakness in the dollar, a 1.3% decline in southern copper output in the second quarter, and hope for fresh assistance from the US Federal Reserve meeting. Copper charts continue to show a bit of breakdown, with prices unable to forge a higher high for the move for the last 10 trading sessions and the market seemingly respecting consolidation resistance around $2.94. However, the trade does appear to be taking note of a trend of tightening supply at LME copper warehouses, with recent stock levels matching six-month lows and an impressive string of declines. In the end, improving factory activity from Germany, hope for progress on a US aid package and hope of ongoing assistance from the US Fed should support global copper demand and prices. While not a major bullish force, copper did see the Chinese President's press conference earlier this week supporting the Asian Development Bank, which is an entity that could help facilitate future copper demand in Asia.

MARKET IDEAS: We suspect that the sideways coil in copper prices over the last 12 sessions has helped to correct some of the overbought technical readings, but we also attribute the lack of upside follow-through to chatter in the marketplace of a slight leveling out of US and Chinese economic activity. The US infection count is a limiting force, and the bull camp might need to see the September contract hold above critical support at $2.8665 in order to avoid a negative shift in technical signals.

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