Lateral consolidation needed to form a bottom
With a new higher high for the Dollar Index movement this morning, gold’s gains appear to be covering yesterday’s collapse. Gold bulls remain discouraged, however, as growing evidence of inflation and soaring US interest rates yesterday resulted in a deletion of the December contract, which at times approached $ 25. In other words, gold and silver failed to profit from inflation and instead are concerned about the sharp hikes in interest rates, the soaring US dollar and the decline in industrial demand for copper. However, the inflationary threat has yet to be fully grasped in the markets, as the Federal Reserve Chairman has testified before Congress that he still views inflationary pressures as transitory. Some economists downplay the potential for inflation until they see CPI readings get as hot as the PPI. With further gains in Treasury yields today, the tantrum tapping of stocks and physical commodities may continue, with copper falling further. With the recent Gold COT report recording a spec and a long net fund of 220,791 contracts, a sell stop loss measure is likely in the event of chart support failure. Critical support and gold targeting for December is estimated at $ 1,727.50, with a return above $ 1,764.60 needed to change the downtrend. Unlike gold, silver did not fall in the face of a tantrum, a higher dollar breakout, and a noted weakness in the gold market, which suggests that value has been found. .
As the palladium market recovered from yesterday’s bearish peak, a series of lower highs and lows appear to continue into another session. Technicians suggest that a potential sideways consolidation of the lower building above $ 1,827.50 has resulted in a steady increase in open interest, as if bargain-hunting buyers are entering the market. Fears of a slowdown in China worry the outlook for palladium demand, and idling of industrial facilities in China due to power shortages is expected to add to economic headwinds and questioning demand automotive catalysts. As Elon Musk and the Biden administration attempt to speed up the availability of computer chips for vehicles, few are hoping for a rapid recovery in global auto production. As a result, the outlook for palladium demand remains bearish and failure to maintain a key pivot point of $ 1,827.50 could project prices up to the weekly support level of $ 1,750. The platinum market avoided the aggressive selling seen in the palladium market on Tuesday, but the environment remains bearish as demand views come under close scrutiny at best. Seeing further tantrums in stocks and other markets could push October platinum down to $ 900.
MARKET IDEAS: We are leaving control to the precious metals bear camp as the fear of rising interest rates swirls in the market and the strength of the dollar again this morning has increased currency pressure on gold and silver. . While risk aversion in equities could put pressure on metals, the main focal point of short-term trading will likely be the direction of US interest rates. The market could distract from fears of lower and higher rates, but a full-blown tantrum could justify trading gold in December below $ 1,706. On the other hand, in the event of a breakout at $ 1,706 and the subsequent construction of a consolidation above that level, this could be a significant long-term buying opportunity. We do not yet trust gold to forge a major fund.
Softening of economic views towards China = decline in copper.
The copper market deserves further corrective action after a four-day $ 0.30 rally. We expect a further drop in copper directly to come as the outlook for the Chinese economy continues to deteriorate amid blackouts, soaring material prices and regulatory fears about the internet / tech industry. China’s largest copper smelters increased mining companies’ processing and refining costs by 27% in the third quarter compared to the second quarter. We see this as another inflationary development that could cause mining companies to resist higher base copper prices, which in turn could lead to higher prices for manufactures down the chain. Note that the LME’s daily copper stocks continued to decline significantly. The combined stocks of LME and Shanghai copper warehouses are becoming an important issue. With the recent COT report recording a specification and long net funding of 24,773 copper contracts, and with the market gaining an additional $ 0.19 after collecting this data, we suspect the long net has become even larger. The potential for sell stop loss per buy spec is high, especially with copper prices still failing to maintain the $ 4.25 level this morning. We also suspect that copper will come under spillover pressure from other commodity markets if yesterday’s tantrum resumes.
MARKET IDEAS: The copper market is vulnerable to other anecdotal signs of a slowdown in China, especially if Evergrande misses an interest payment today. In addition to a downward revision by economists of GDP projections for China, reports of power outages in China have already caused industrial facilities to slow down, which could mean a further slowdown. most important. We consider copper prices above $ 4.31 to be expensive and judge the market to be fair valued at $ 4.11.
Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.