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Bull vibe temporarily lost corrective action through the Fed

Commentaries & Views

GOLD / SILVER

The path of least resistance in gold and silver has shifted to the downside, with technical and fundamental forces pointing to slumping prices ahead. The gold charts have turned distinctly negative, with a six-day low in the early action today and pressure flowing from a stronger dollar and a tick higher in US interest rates. Gold appears unreceptive to bullish demand stories, as reports overnight of a significant jump in Indian gold imports from Switzerland failed to support prices. While the 82.6 tonnes they imported from Switzerland last month was the biggest Indian offtake since April 2013, traders doubt the sustainability of that trend given the wildfire spread of infections in that country. Even the silver market is failing to benefit from projections from the Silver Institute last week that demand could propel silver prices 30% higher this year. Investors remain cool toward both metals, with gold and silver ETF holdings yesterday declining. A prediction by Goldman calling for another 13% gain in commodities does not appear to have lent much support either.

The focus of the markets today will shift to the post FOMC meeting announcements this afternoon, with expectations that the Fed will hold rates steady. On the other hand, the recent surge in prices has prompted some concern in the gold trade that the Fed's statement could have a slightly hawkish tilt.

In retrospect, the action in the gold market was disappointing for the bull camp yesterday, as solid Chinese mainland gold imports from Hong Kong for the month of March failed to lift prices, even though the other metals posted gains. It is possible that some longs have decided to bank profits and move to the sidelines ahead of the Federal meeting. With open interest dropping off after the double test of the psychological $1,800 level, longs may have decided to exit for several reasons. We see a critical pivot point at $1,760 in June gold today and anticipate a burst of volatility following the Fed statement and press conference. However, with gold sitting $100 above the 2021 lows, the bull camp will need a continuation of the Fed's supportive policy without inflation concern.

Silver had been developing a more positive tone than gold, but this morning it has violated several key chart points despite lower production news from the key Mexican silver producer Fresnillo, which reported its first-quarter production down 4.5% from last year and 2.4% from the fourth quarter of 2020. This could make the Fed statement important to the bull camp today, especially with the violation of critical uptrend channel support point at $26.05 earlier in the session.

PGM

Palladium has retrenched from yet another all-time high, despite ongoing evidence of surging Chinese auto catalyst demand. Expectations call for positive Chinese PMI data as well, and there were report yesterday that Chinese domestic air passenger travel was back to pre-pandemic levels. Expectations for improved demand for automobiles should leave palladium demand running hot. While inflows into palladium ETFs have not been consistent recently, yesterday they did increase by 3,264 ounces, with the year-to-date holdings up 3.1%. Holding back prices today is a Reuters poll predicting that palladium would average a mere $2,552 this year and even less in 2022. Critical pivot point support in June palladium comes in at $2,888 today, with the next psychological targeting up at $3,000.

Platinum market joined palladium with an upside breakout yesterday and its highest trade since February 25, but it has recoiled sharply despite positive demand stories regarding growing use of platinum in hydrogen-based products. Like palladium, long term price forecasts came in below recent market action, sign that analysts do not expect the bull trend to continue in the PGM complex. On the other hand, platinum could be seen as one of the few "very cheap" commodities capable of benefiting from an inflationary period. Critical pivot point support in July platinum today is seen at $1,203.50 with resistance pricing lowered to $1,237.80.

MARKET IDEAS: The bias in the precious metals markets has turned down over the last 24 hours, with the bull camp potentially fleeing to the sidelines ahead of the Fed result later today. If you take the US Federal Reserve at its word, then today's FOMC meeting results should be supportive for the metals complex. However, there are some analysts who will be looking for any sign that the Fed has begun to monitor inflation pressures, as that could undermine what is already a suspect bull environment. Pushed into the market today, we favor the downside, with key pivot point pricing in June gold at $1,750 and a similar pivot point support in May silver down at $25.68.

COPPER

Temporary corrective action

Not surprisingly, copper is showing corrective action this morning after a three-day rally of 26 cents. However, it should see support from the return to daily tightening in LME copper warehouse stocks. Additional support could be seen from the lofty price projections from Goldman Sachs and the potential for a supply disruption from Chile, where there have been port closures due to protests. So far, Chilean copper exports have not been disrupted. While many analysts are beginning to project copper prices to all-time highs above $4.60, a direct path to that level will likely require a stronger global risk-on environment than has been seen so far this week.

MARKET IDEAS: We see a bit of corrective action in copper today, but the bull case is strong, and the supply-side of the equation is tenuous due to issues in Chile. While we do not expect a full retracement from the April rally, a "normal" retracement would project prices down to $4.3260. Closer in support in July copper is pegged at $4.37.

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