Evening Metals: The Partial Dovish Shift in the Fed Earlier in the Week is Lost
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GOLD / SILVER
After 4 days of positive closes and the regaining of $1,825, the February gold contract appears to have run out of upside capacity. While the US PPI report signaled inflation, trade expectations were for higher inflation than was seen and that seem to take the wind out of the bull's sails. Once again, the gold and silver bulls were disappointed by the lack of definitive lift from another downside extension in the US dollar. We suspect that gold and silver were undermined because of comments from the Fed's Harker who indicated he was warming up to the idea of a March interest rate "hike". In the near term, the gold and silver trade are being buffeted by action in interest rate markets and currency markets and that buffeting is likely to become a daily condition. From a technical perspective, the rally this week in the gold market was carved out on very minimal gains in trading volume and no change in open interest. In looking ahead to today's action, the gold and silver trade could see some impact from Chinese import and export data for December and from Japanese producer price readings. In our opinion, the gold bulls need strong Chinese imports and exports as weakness in imports could signal the Chinese economy is indeed having difficulty battling the omicron infection surge. Seeing China struggling with the omicron infection surge favors deflationary influences from the world's largest commodity player.
PGM
There is little reason to change our view of further consolidated action in the PGM markets. In fact, we are hesitant to label the sideways action in March Palladium in early January as a "coiling" pattern as that insinuates the potential for a definitive "move" in prices. On the other hand, there are early signs of improvement in vehicle manufacturing hindered by chip shortages and demand for vehicles remains very strong and that should increase the odds that March palladium holds above consolidation support at $1,822. Similarly, the platinum market also remains mired in a trading range bound by $1,004.80 and $919.50. It should be noted that on this week's low to high rally of $64 was forged on declining open interest and trading volume. However, we see a close in support/pivot point at $961.50 today but pushed into the market we would be a seller of a rally to $985.
PRECIOUS METALS MARKET IDEAS
The primary trend in the precious metal markets might become no trend as noted weakness in the dollar has been countervailed by periodic concern over rising rates. In fact, another Fed member yesterday indicated he was warming to the idea of a March interest rate hike and that should thicken resistance in February gold at the January high of $1,833. Similar resistance in March silver is the January high of $23.44. As for the PGM markets we have no opinion given a dearth of fresh fundamental news.
COPPER
A slight pause needed to balance an outsized gain
In retrospect, we doubted the sustainability of the large Wednesday rally in copper as trade sources indicated the run up was the result of a strike threat. On the other hand, the copper market probably drafted support from risk on sentiment and a wave of higher commodity prices. Also underpinning copper prices above the $4.50 level is persistent declines in the dollar and reports of extremely tight industrial metals like aluminum and nickel. Keep in mind the dollar has weakened, thereby allowing greater Chinese purchasing power! The bull camp might also be seeing additional lift by sharp gains in cobalt and lithium prices. It is also possible that copper will continue to "look through" the omicron surge in anticipation of a recovery in Chinese copper demand. As indicated in other market coverage today, Chinese import and export data today might be considered the first meaningful measure of the omicron impact on the Chinese economy and in turn on the ebb and flow of Chinese copper demand.
In addition to support from strong prices and tightening supply in aluminum and nickel, the copper market should be drafting support from persistent weakness in the US dollar. From a technical perspective, we see psychological support at $4.50 but without a range up extension in equities or strong Chinese import/export data, it could be difficult to extend this week's rally straightaway.
