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Slightly vulnerable off dollar strength

Commentaries & Views


The gold and silver markets start Wednesday under moderate pressure, with strength in the dollar likely providing the brunt of the weakness. On the other hand, the markets overnight saw a slight uptick in US Treasury yields and a significant decline in Perth mint gold sales in a possible sign that pricing near $1900 might be discouraging retail demand. European producer prices came with a gain of 1%, which should provide inflationary support to the precious metal markets. Energy and grain prices remained very strong overnight, adding to the interest in inflation-sensitive instruments. Outside market forces continue to signal the chance for inflation, while other scheduled price readings like ISM manufacturing prices paid and the PCE last week continue to register their own form of inflation. While gold ETF holdings increased by 179,811 ounces yesterday, silver holdings were reduced by 131,938 ounces. The gold contract showed the largest monthly gain since July 2020 in May, with the brunt of that strength tied to a 300-point slide in the Dollar Index. This afternoon will bring the US Federal Reserve Beige Book, which should yield some indication of the Fed's stance with respect to tapering. The latest COT report showed a net increase of 19,000 contracts in the spec and fund net long, but the gold market is not yet overbought relative to the last 16 months. Silver showed significant divergence with gold yesterday, especially during the initial gains in gold prices in the morning. Silver showed significant volatility with prices retrenching by nearly $1.06 from the early Monday high to this morning's low in a fashion that suggests a possible blowoff top. Adjusted into the high yesterday, the spec and fund net long in silver might have registered the largest February 2020, and that could feed stop loss selling today.


The PGM markets are showing corrective action with both platinum and palladium tracking in sync instead of diverging the way they did on Monday. Fortunately for the bull camp, Chinese PMI data was positive and European producer prices this morning jumped by more than expected, keeping inflation buzz as a supportive element. The spec and fund net long in the palladium market remains well within a range that started back in March 2020, with the latest positioning report at only 2,000 long versus the record of 30,000. We see critical support in September Palladium today at $2,815 with resistance at $2,879. The platinum market has stirred to life after diverging with palladium early in yesterday's session. However, the spec and fund net long in platinum is near the low from October, which in turn was the lowest since July 2019. Unfortunately for the bull camp in platinum, daily ETF holdings yesterday declined for a sixth straight session, indicating a lack of solid investment interest. We see solid support at $1187.20 and little in the way of resistance until $1217.60.

MARKET IDEAS: While the trend remains up in gold and to a lesser degree in silver, today appears to be a retrenchment day. With the gold and silver trade not undermined yesterday by the jump in Treasury yields, it is possible that those markets are turning their attention to weakness in the dollar and/or to the building inflationary chatter. The bounce in the dollar this morning reduces the bullish buzz and makes close-in chart support levels very critical. Critical support in August Gold is seen at $1,886 with resistance at $1,919.20. Similar support in July Silver is seen at $27.87 with resistance today at $28.43.


Corrective action from fundamental and technical signals

While the copper market forged a 9-day high yesterday, it was unable to hold in positive territory in the wake of positive Chinese factory news and ongoing threats against supply in Chile. The supply side is threatened further by the potential for a copper tax in Peru, which is expected to negatively impact Chinese mining companies in the country. In a slight negative overnight development, the press is taking note of some long fund liquidation in copper with the news coverage suggesting that Chinese demand buzz has moderated for now. The spec and fund net long in copper sits near the lowest level since August 2020, and that should increase the potential of respecting critical consolidation low support at $4.55. It should be noted that LME copper warehouse stocks have generally continued to fall (they did increase overnight) signaling positive demand beyond China. Chinese officials continue to threaten speculators, who they say are boosting physical industrial material prices, and that discourages some bargain hunting.

MARKET IDEAS: The bias is down with the copper market discounting supply threats in South America, strength in the dollar, moderating demand buzz from China and modest damage on the charts. Uptrend channel support in July Copper is at $4.55, with resistance and a target today seen down at $4.6050. The bias is up, but fresh longs should wait for a bigger washout to $4.50.

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