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A temporary pause in bearish control.

Commentaries & Views

Despite a fresh downside breakout extension in the Dollar Index, the gold market is starting out under modest pressure today. We suspect it is partially the result of an overdone condition from yesterday's rally. There appears to be a risk-off vibe in place this morning, with nearly all commodity markets under pressure, and that suggests the bear camp has a slight edge to start. Perhaps gold and silver are off balance the latest US daily infection count rose above 86,000 and because a fresh memo from the CDC indicated the Delta variant was not only much more contagious than the initial virus but was causing more severe illness. Gold discounted some very hot European inflation data overnight, and that suggests the bull camp might be tired.

Bullish forces at work yesterday included favorable World Gold Council projections for Indian demand, a WGC report documenting a 60% jump in quarterly jewelry buying, a 56% increase in bar and coin investment, evidence of central bank buying, a sharp washout in the dollar, economic uncertainty from the US jobs front, and positive leadership from energies and many other commodities. Given the surprising range up action in gold and silver, we suspect that a measure of technical stop loss and margin-related buying added to the move. The December contract rising above its 200-day moving average at $1,834.80 was another bullish factor yesterday, but it failed to hold above that line in the early action today.

The World Gold Council report was not all positive, as it included a significant jump in scrap gold supply and noted weakness in investor interest. We would also note that central bank buying was led by several smaller nations, with Thailand, Hungary, and Brazil the top three buyers with a total purchase of 204 tonnes.

After yesterday's action, we still favor the bull case, but we caution against chasing the market higher given gold’s inability to sustain breakouts in the recent past.

The gains in silver yesterday were likely the result of the large rally in gold, but they were also helped by strength in commodity markets in general, weakness in the dollar, and new highs in US equity prices. The upside target in silver becomes the 200-day moving average at $26.04, with critical support now labeled at $25.52.

While the palladium market surged with gold and silver yesterday, the market reversed aggressively, and prices eventually traded $37 below their initial highs. Overnight, press outlets released upwardly revised price forecasts from analysts, and that has helped the diverge with the rest of the precious metals this morning. The upward revisions in price projections for palladium were due to a combination of ongoing tight supply and gradually improving auto catalyst demand expectations.

We note that analyst forecasts for the "average" price of palladium were only $30 above current futures, thereby offering little fresh incentive to would-be buyers. For aggressive traders, we suggest selling September Palladium on rallies above $2,662 with a downside target at the consolidation lows from this week at $2,583. The platinum market also ranged up sharply but reversed course yesterday, which suggests the bull camp had little interest in following gold and silver higher. The market managed the initial gains despite overnight news that 95,224 ounces had been liquidated from platinum ETF holdings, for a single-day decline of 2.4%. We expect October platinum to continue to retest levels just above $1,040.

MARKET IDEAS: For the first time in a long while, the rally in the gold and silver markets had its genesis in a 'list" of classic fundamental developments. This leaves the bull camp with an edge today, with the most likely buying theme being the weaker dollar. But unfortunately for the bull camp. the broad-based commodity buying buzz from yesterday has dissipated overnight and has been replaced by a modest risk-off mood from surging US infections and weakness in equities. Gold rallied above its 200-day moving average yesterday at $1,834.80 but pushed back below that level early today, and that has the bull camp on the defensive. Silver has also retrenched from yesterday's sharp pulse-up move, indicating an overbought condition. Silver has yet to regain its 200-day moving average (up at $26.04), and the bull camp is partially undermined by a 2.5-million-ounce liquidation in silver ETF holdings yesterday.

Fresh strategic sales from China caps bullish sentiment.

In addition to getting a lift from macroeconomic optimism from surging equities, a falling dollar and strength in many other physical commodities, copper was supported by news that a BHP Chilean union was set to vote on a strike. Apparently, the strike vote will proceed into July 31, and that should leave a supply-side bid under prices. However, prices will likely be limited by the Chinese government announcement of third 30,000-tonne copper sale from strategic reserves. The bull camp yesterday managed to discount disappointing US jobs and pending home sales data, but that was largely the result of significant risk-on vibes from the equity markets.

MARKET IDEAS: While we give the edge to the bull camp because of the potential for a looming supply disruption in South America, they could be kept off balance by fears of further Chinese strategic stockpile sales and risk-off sentiment from rising US infections and fears of overvaluation of key bell-whether big tech shares. We see pivot point support this morning at $4.4595, and the expected top of the trading range today is seen at $4.5875.

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