Junction Ahead for Gold & Silver

GOLD / SILVER

Today is likely to be a major junction for gold and silver prices with a prevailing bearish tilt likely to be facilitated by financial market action. However, silver and gold prices could be “saved” with a softer than expected US CPI report as that would likely result in lower dollar action and declining treasury yields. On the other hand, seeing a CPI reading above 0.4% should reignite the rally in the dollar and should lift treasury yields. Unfortunately for the bull camp, forecasts for today’s US CPI were revised upward with some economists mentioning the August surge in gasoline prices as a tide lifting other prices in the index last month. With the dollar initially failing to post a lower low for the move and recovering from the lows yesterday, the gold market saw its bottom fall out. With expectations for today’s US CPI reading already rather high at +0.5%, an upward adjustment in estimates to 0.6% is a significant development. While one could suggest the trade has set a high bar for the level of inflation, we view any inflation reading above 0.4% as problematic and likely to slightly narrow the prospects the US will pause next week. With the silver market holding together in the face of weakness in gold yesterday and silver ETF holdings increasing by 1.7 million ounces on Monday, the potential for respecting the $23.00 level in December silver has improved marginally. On the other hand, a significant surge in fear of a resumption of rate hikes by the Fed would certainly bring silver down along with gold and many physical commodities today.

PLATINUM / PALLADIUM

Given that the latest trend in platinum has been definitively lower, yesterday’s gains were likely short covering ahead of a highly uncertain reaction to US CPI data today. In our opinion, the most likely outcome for platinum from the CPI report is for a resumption of selling unless there is a definitive downside surprise reading in the report. Certainly, the impressive rejection of the recent consolidation low of $912 presents credible support, but without a shift into a broad risk-on market environment and/or given a soft CPI reading, chart support levels are unlikely to hold up prices.

COPPER

The copper market this week forged a double low and a double high in just two trading sessions, suggesting the trade is having difficulty establishing a prevailing view. In addition to the prospect of spillover pressure from currency and interest rate markets today, the copper trade continues to face daily evidence of rebuilding copper exchange supplies. With the inflow overnight of 7,750 tons, LME copper warehouse stocks have risen for six days in a row and have increased in 38 of the last 43 days. Furthermore, Shanghai weekly copper warehouse stocks have increased 3 weeks in a row and are currently at 6-week highs. Even with the Chinese offering up what has almost become daily stimulus news, negative sentiment toward the Chinese property sector persists and therefore even a modest risk off environment today could send prices spiraling back toward this week’s lows.

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