GOLD / SILVER
With a fresh new high for the move in the dollar to its highest level since March 15 yesterday, the gold market is short term overbought and is facing ongoing currency-related pressure. Surprisingly, silver has avoided the pressure seen in the early gold trade, thereby signaling its continued focus toward physical commodity fundamentals instead of financial/currency related factors. Gold and silver should see minimal support from a continued slide in US interest rates today. Unfortunately for the bull camp, gold ETF holdings saw an outflow yesterday of 11,088 ounces, which lowers the net purchases this year to 461,016. In a minimally supportive development for silver, ETF holdings yesterday increased by 127,446 ounces. This is important for the bull camp after seeing several massive outflows last week. Chinese nonmanufacturing PMI readings for May came in much higher than expected, and that offsets softer than expected Chinese manufacturing PMI data and is supportive to gold and silver. While it seems like the US debt ceiling deal is close to passage, some economists are suggesting that the spending cuts in the bill will increase the chances of a US recession. Another negative weighing on gold and silver prices is a slight escalation in the prospects of a US rate hike after some upbeat US scheduled data recently, particularly if a budget deal manages to reduce uncertainty across the markets. With a sharp rejection of yesterday's dip to $1950 in gold, that level has been given added credibility as key support. We see silver as vulnerable to risk-off trade, but the magnitude of the spec and fund net long in silver from last week's COT report suggests that market is less vulnerable to long liquidation than the gold market is. Silver should see some pressure from the disappointing Chinese manufacturing PMI readings for May, as that could reduce that nation’s silver imports. July silver has key support at $23.00, but without prices leaping off a risk-on euphoria from a debt deal, the bull camp lacks a story that justifies buying at support.
PGM
With a downside breakout overnight to the lowest levels since April 12, a moderate spec and fund net long position is likely to provide stop loss selling fuel for platinum. Overnight platinum ETF holdings were up a minimal 696 ounces, with holdings remaining 10% higher year-to-date. This suggests investment interest talk today will not cushion prices. The market was undermined by slowing Chinese manufacturing PMI data released overnight, and we suspect dollar strength and a risk-off environment will add to the pressure on platinum today. The market has failed at consolidation support around the $1025 level, and we think the odds of a trade down to $1000 are increasing. The inability to hold above last week's low at $1020.80 could unleash an aggressive wave of stop loss selling, especially considering the spec and fund net long position is near 15-month highs. The palladium market continues to be out of favor relative to platinum, but with a spec and fund net short, a liquidation wave in palladium could be less aggressive than in platinum. Disappointing Chinese manufacturing data creates could spark some selling on demand concerns, and this increases the potential for the market to test its March low at $1357.
MARKET IDEAS: While it is a close call predicting today's direction in gold and silver, we leave the edge to the bear camp. Outside market influences, disappointing Chinese economic news, and a stronger dollar gives the bears several themes. The rally in August gold yesterday has left the market vulnerable to a quick setback to $1950, with silver vulnerable given a slightly overbought condition from the $0.87 rally off last week's low. However, the bears’ biggest threat today might be the lack of significant movement in prices.
COPPER
Negative demand signals and short-term overbought
With the July copper contract spending most of the overnight trade in negative territory, disappointing Chinese manufacturing PMI data selling today is justified. Keep in mind that Chinese copper demand is probably greater than 60% of total world demand expectations, so the overnight data should not be taken lightly. However, it should be noted that Chinese nonmanufacturing PMI data was stronger than expected, and that has muted demand fears somewhat. In a development that is more psychologically than materially supportive, LME copper warehouse stocks broke a month-long trend of daily inflows with an outflow. However, LME stocks remain 13,000 tonnes above Shanghai warehouse stocks. Seeing the July copper contract rally yesterday was not surprising given the specs and funds were net short 27,001 contracts in COT positioning report before prices fell $0.10. After the decline last week, speculators could be holding their largest net short since early 2020.
MARKET IDEAS: The copper market needed a short covering bounce to balance short-term oversold technical measures. The fundamental bias remains negative today unless market euphoria emerges from passage of the debt ceiling agreement, but given negative Chinese manufacturing PMI data, the bear camp has a chance to push July copper below $3.60.
