Morning Metals - Gold Vulnerable. Silver Less So
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GOLD/SILVER
We see the gold market in a corrective track on the charts with fresh fears of deflation/slowing fostered by the latest US infection count of 288,579 for December 20t! Omicron has become the dominant variant in the US, representing more than 70% of new cases. It is highly transmissible, but the idea that it is less severe, at least for the vaccinated, seemed to bring a risk-on vibe to the market yesterday. Unfortunately for the bulls, the inflation story that had supported gold in recent weeks has died down with the emergence of Omicron. And with talk of a possible rate hike next year, the Fed seems ready to move to squelch inflation sentiment. August gold tried to rally on Tuesday but ending up lower. Furthermore, additional risk off sentiment from equities could today add to the steady erosion in gold prices that began last Friday. In a positive development for silver, ETF holdings yesterday jumped by 2.7 million ounces for a single day gain of 0.3% bringing the year-to-date "gain" up to 1.1%. It didn't help gold and silver prices yesterday that bond prices fell sharply for the second straight day, which means higher interest rates, making non-interest-bearing instruments like gold less attractive. However, March silver yesterday took encouragement from the risk on mood to trade to its highest level in three weeks, presenting a bullish technical setup to counter gold's vulnerable fundamental positioning.
PLATINUM GROUP METALS
In addition to bullish press coverage overnight, palladium is bolstered from the prospect of significant ongoing short covering especially with the violation of key chart resistance levels. Not surprisingly, the PGMs benefited from the risk on mood yesterday, with both platinum and palladium rebounding from Monday's selloff but neither able to make it through last week's highs. The ebb and flow of Covid news could drive the PGMs in either direction over the next few days, as reports of soaring infection rates act as triggers for trader anxiety. Ultimately, a strong global economy and a loosening of supply chain bottlenecks will boost auto catalyst demand, which would support palladium and to a lesser extent platinum. Key resistance for March palladium comes in at $1,865, with support at $1,688. January platinum resistance is at $942.20 with support at $909.20.
TODAY'S MARKET IDEAS
The Omicron surge has moved inflation off the headlines for now, leaving the gold bulls on the defensive. February gold fell back to the 21-day moving average on Tuesday, and that level, $1785, could be key support today. March silver broke through last week's high to trade to its highest level since December 1st, and a series of higher lows and higher highs presents a bullish setup. However, the wide range on Tuesday may contain the market over the next couple of days. Retracement targets of the November-December selloff come in at $22.98 and $23.48 in March silver.