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The bias remains up more global inflation readings overnight

Commentaries & Views

Chart  Description automatically generated With a series of hot inflation readings overnight from the UK and the Euro zone, the strengthening dollar has not prevented gold and silver from tracking higher in the early action. However, along with rising inflation signals are concerns of interest rate increases, with the Bank of England and Bank of Canada possibly closer to hiking rates than many other central banks. Going forward, the markets could be buffeted by the president's decision on the next Federal Reserve chairman, as the balance between obtaining full employment and controlling inflation could be different among different leaders. Recent statements by Federal Reserve members have varied, with James Bullard pushing for the Fed to become more hawkish and Mary C. Daly stating it is still too early to act. Another potentially supportive development came from the US Treasury Secretary, who warned that December 15 would be a default deadline for the US. While the December gold contract did forge a fresh new high for the move yesterday, the market failed and put in a modest reversal. The dollar appears to be in a moonshot, and that is discouraging bulls in both gold and silver. Some traders suggested that a significant jump in US economic activity from reports yesterday prompted the reversal, but we suspect comments from Bullard regarding the need to orchestrate a hawkish policy tack was the real culprit behind the setback. October US export prices jumping a record 18% year-over-year is another inflationary concern for the Fed, and therefore Fed commentary is likely to remain bearish directly ahead. Volatility in gold and silver looks to expand as the threats of inflation from regularly scheduled reports and anecdotal evidence from the press will likely lift prices aggressively, while hawkish dialogue from central bankers will prompt hard breaks without notice. From a technical perspective, open interest in gold leveled out on Monday and remains very high, which suggests the gold market burned significant fuel on the early November rally and may now be vulnerable to a significant dip.

The palladium market was the stalwart performer in the precious metals complex on Monday. However, with the recent record spec and fund net short, we suspect a portion of the move yesterday was stop loss buying. Nonetheless, near term upside targeting is seen a fraction above $2,200, and key support comes in at the Monday low at $2,082.50. While the platinum market did not forge impressive gains like palladium to start the trading week, the charts remain bullish with higher lows and mostly higher highs. While we have nothing to base our speculation on, it is possible that some inflation money is beginning to view the PGM markets as undervalued and potentially capable of offering greater returns than gold in the event inflation becomes widely entrenched. Critical support in January platinum is seen at $1,062.70 with resistance pegged at $1,100.40.

MARKET IDEAS: We detect a measure of vulnerability in gold and silver, as hawkish Fed dialogue is increasing, and the US dollar is exploding on the upside. The inflation story lives on with a flurry of extremely hot reports from the UK and Euro zone overnight, but without surging crude oil prices, gold might lack a catalyst for a pulse higher. After climbing above a 6-month-old downtrend channel resistance line last week, the December gold contract has seemingly lost upside momentum and has rejected the $1,875 level on the charts in the process. That long-term downtrend channel resistance line has become support, with a pivot point at $1,855.35 today. We do not detect wholesale liquidation coming, but with open interest climbing 110,000 contracts since the beginning of the month, we would not rule out compacted stop loss selling or compacted stop loss buying on a breakout of the $1,877-$1,848 range.


Chart  Description automatically generatedBias down, Chinese news negative, exchange stocks up.

Like gold, copper forged a reversal yesterday that shifts the charts from bullish to bearish. The market is probably put off balance by a rare and significant jump in daily LME copper warehouse stocks, which were up 5,525 tonnes this morning. However, this was only the third daily inflow out of the last 43 sessions. Warehouse stocks had dropped to the lowest level since March 12 and were closing in on a key low level from December 2005. Overnight, China indicated their refined copper output declined by 0.3% on a year-over-year basis in October, and that combined with port congestion that is slowing imports of copper material adds to the initial bearish track this morning. While the markets did not expect significant takeaways from the conference call between Presidents Biden and Xi, the trade appears to be disappointed in the lack of any substance from the discussions. The bull camp should also be disappointed in the lack of buying interest generated by a sweep of better-than-expected US economic data on Tuesday.

MARKET IDEAS: Near term downside targeting in December copper is the bottom of the early November consolidation, which begins at $4.2800 and extends down to $4.270.
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