GOLD / SILVER
While a risk-off theme permeates the markets this morning, the Dollar Index is tracking slightly higher and adding to the negative macro view toward commodities. Fear of hawkish US Federal Reserve meeting minutes this afternoon combined with a 50-basis point rate hike from the Royal Bank of New Zealand overnight provides gold and silver with multiple bearish themes. Even though several Fed members have recently pushed for jumbo rate hikes in next month's meeting, today's meeting minutes release might not be as hawkish as market expectations, as the Fed had not seen the ultra-strong January jobs results when those minutes were taken. Unfortunately for the bull camp, prevailing expectations will likely remain hawkish despite countervailing dialogue in today's release. However, if the US continues to show mostly positive economic reports, the prospects of an even higher than expected terminal rate will grow. Yet another bearish influence on gold is an eighth straight outflow of ETF holdings. Holdings are now down 1.2% year-to-date. On the other hand, silver ETFs added 125,304 ounces yesterday, and their holdings are now 2.2% higher year-to-date. From a supply perspective, gold should receive minimal support from a reduction in AngloGold gold production targets for this year, as that company shifts its focus to reinforce a waste dam in Brazil. A positive from the demand side of the equation came from IMF news that the Kazakhstan central bank continued its pattern of building gold reserves. Furthermore, the Indian Central Bank added minimally to their holdings in December (according to the IMF). Clearly, gold is not able to benefit from flight to quality buying following a 697-point dive in the Dow yesterday and with early global equity weakness today also not yielding interest in gold. In the near-term, the $1,850 level in April gold is likely to become resistance, with support coming in below $1,825. We see resistance in March silver developing at $22.00 and prices retesting last week's low at $21.15.
PGM
While the platinum market might see negative outside market/macroeconomic pressure today, the charts have turned positive, and flows into platinum ETF holdings continued yesterday. Platinum ETF holdings increased yesterday by 4,568 ounces and are now 2.3% higher year-to-date. In another supportive overnight development, a source on Bloomberg indicated they see a 2023 world platinum deficit of 304,000 ounces. The source predicted improved demand from the automotive industry, but that could be uncertain with the jump in car loan rates and economic slowing concerns. It should also be noted that supply losses from South African power problems could reduce output and aggravate a global deficit. The strong performance in the PGM markets yesterday was impressive, particularly with sagging economic sentiment, and the market is holding up relatively well in the face of a massive risk-off environment this morning. We see thin resistance in April platinum at $950 and again up at $957.50, with support at $920.50. Strong palladium prices yesterday were also impressive and surprising. We think the market was massively oversold, with the low last week coinciding with a new high in open interest at 12,582 contracts, especially with the spec and fund position likely significantly net short into last week's low. Yesterday palladium ETF holdings increased by 585 ounces, making them 4.9% higher year-to-date. Today, downtrend channel resistance is $1,600.50, and a pivot point is seen at $1,466.
MARKET IDEAS: We are suspicious of yesterday’s strength in silver, platinum, and palladium, as concerns about economic slowing US rate hikes, and expanding negative sentiment flowing from a hard break in global equities should have pressured the precious metals. The gold market remains intensely focused on action in the dollar, and we suspect more weakness will be seen in gold today into the US release of the FOMC meeting notes. The $1,850 level in April gold is likely to become resistance, with support falling below $1825. We see resistance in March silver developing at $22.00 and prices retesting last week's low at $21.15.
COPPER
Slightly overbought with macro challenges pressuring today
Not surprisingly, the copper market has recoiled from yesterday's explosive rally and has fortified the $4.20 level as primary resistance. Shanghai copper prices held up overnight, but copper and other industrial metals softened in London. We were surprised with the magnitude of the rally yesterday, as it was forged in the face of evidence of further supply building inside China and a significant risk-off wave in the US. Risk off sentiment could reach a crescendo this afternoon following the release of meeting notes from the FOMC meeting. Some economists are beginning to push back the timing of a recovery in the Chinese economy from this month to next month, and that could make the January consolidation high formidable resistance. The copper market saw open interest fall off precipitously after it dove below $4.20 early this month, so that level appears to be some form of value. Yesterday's rally was forged on the highest trading volume since February 2021, which is also supportive. With the Commitments of Traders reports delayed until further notice, it is extremely difficult to estimate the amount of liquidation on last week's failure of the $4.00 level. Nonetheless, we suspect the market was heavily liquidated early last week.
MARKET IDEAS: While we see the long-term path of least resistance pointing up in copper, we are having difficulty rationalizing the recent rally from a fundamental perspective. Certainly, optimism toward a recovery in the Chinese economy (and therefore a recovery in copper demand) remains high, even if estimates have pushed back recovery timing. Nonetheless, the $4.20 level has become a key pivot point, and that level could become support after a setback today.
