GOLD / SILVER
In retrospect, traders might have been too quick to conclude that the Fed is softening its rate stance. That seemed to be on traders' minds earlier this week with the recent pattern of strong US economic data. Furthermore, with very critical inflation news expected from China tonight and the US PPI report on Friday morning, the markets are likely to get fresh direction of Fed policy. Obviously, with Bonds and Notes trading up to their highest levels since September on Wednesday, the markets continue to signal that the Fed will pare back its rate increase to 50 basis points this month after a series of 75-bp hikes earlier this year. In the end, with the subject of tempering tightening in the marketplace, today's jobless claims will take on added importance for gold. Gold and silver benefited from a weaker dollar on Wednesday, but the Dollar Index has held above Monday's lows, and it would probably take a trade below there to support a stronger rally for gold. The Peoples Bank of China added to their gold holdings for the first time in three years in November, which is fundamental bullish factor if this is the start of a new trend. Reports are that the Chinese central bank is attempting to diversify away from the dollar, but we suspect the bank has been adding consistently to its gold reserves secretly on-and-off for years. They have a way to catch up with the US, whose gold reserves are reportedly 8,133 metric tonnes, more than four times Chinese holdings of 1,948. The World Gold Council has noted that the world's central banks purchased nearly 400 million ounces during the third quarter. Unfortunately for the bulls, the technical picture is looking shaky, as Monday's rally above the November high was met with lower volume and open interest and divergence with momentum indicators. Both gold and silver could have a difficult time avoiding back-and-forth action until the PPI report on Friday.
PGM
While China's move to lift some Covid restrictions may have provided support to platinum, palladium remains locked in a downward slope. January platinum had an outside day higher on Wednesday, which suggests that the market may take another run at the November and December highs at $1,074.10 and $1,066.80. Without a dominant supply/demand theme, palladium probably needs some indication of stronger automobile manufacturing activity (likely in China) to embark on a bull run. Lowering Covid rules is a start, but the market could use some indication that the Chinese government is committed to getting their economy rolling again. Key round-number support for March palladium is $1,800.
MARKET IDEAS: While the bias in gold and silver remains up, the trade will face turbulence through two upcoming US inflation reports (Friday PPI, estimate 0.1% and Tuesday CPI, estimate +0.5%), especially with Treasury markets aggressively priced for a throttling back in the magnitude of US rate hikes. At present it appears that the Friday US PPI reading could be a bullish catalyst for gold and silver (if it matches expectations), but CPI next week could be problematic for the bull camp. A trend of higher highs and higher lows is supportive, but declining volume and open interest and divergence with momentum indicators on the recent rally is short term bearish. Near term downside targeting in February gold is $1,753.30 and similar downside targeting in March silver is pegged at $21.88.
COPPER
The bias is up from generally hopeful Chinese Covid news
The bias in copper continues to point up, despite relatively confusing Chinese Covid headlines. However fresh support is seen today from an upward revision in a Goldman Sachs copper price forecast. Supposedly, seeing the beginning of a relaxation of Covid restrictions in China could rekindle concerns of the ultra-tight domestic copper supply there. China's November unwrought copper and copper ores and concentrate imports came in above October's totals, which indicated some improvement in their demand outlook. Goldman raised its upper price target for LME copper from $9,000 per tonne to $11,000. Seeing a three-day high upside breakout this morning in the face of news that copper output in Peru in October increased by 8.3% from year ago levels hints at a bullish edge. While prices remain within their early December consolidation zone, the charts appear to be setting up for an upside breakout that could project prices above the 200-day moving average at $3.93. LME copper stocks had a significant build on Wednesday, but that was their first increase in seven sessions, and they are below November month-end levels and well below where they were at the end of the third quarter.
MARKET IDEAS: The copper market did manage a positive reaction to the latest reduction in Chinese activity restrictions, but for significant gains ahead, it might need signs of additional Chinese government support for their property sector. An outside day up yesterday followed by a fresh higher high early today leaves the bull camp in control. Near-term support for March copper is at $3.8350, with resistance and the next upside target at $3.9250.
