EXTERNAL MARKET DEVELOPMENTS: Global stock markets were mostly down last night, except for the All Ordinaries Index and the TOPIX Index, which were trading slightly higher. Other news released overnight included weaker than expected NZ exports in June, stronger NZ imports for June, negative trade balance for goods from Japan, stronger Japanese imports and exports for June, a significant drop in business confidence from the National Australia Bank, a notable jump in credit card spending in New Zealand, a significant jump in net public sector borrowing in sterling, the French business climate as expected in manufacturing readings for July and lower auction yields for Spanish 5-year bonds. The North American session will begin with weekly data on initial and pending claims, with expectations calling for an increase in continuing claims and a decline in initial claims. Markets will also be presented with a Philadelphia Fed manufacturing survey for July, which is expected to improve from last month.
Gold and silver markets, like many other commodities, are falling victim to growing fears of a global recession this morning. It is also likely that a slightly higher level of the dollar will provide additional selling incentive. Another moderately negative development was a 16th consecutive day of gold ETF outflows, with another large outflow of 209,720 ounces overnight. Even more negative was a massive outflow of 8.3 million ounces from silver ETFs, pushing total holdings down 8.1% for the year so far. Even the technical picture turned bearish, with the October gold contract collapsing on psychological support at $1,700. With Russian gas returning through a critical pipeline this morning, a sharp acceleration in inflation in Europe from gas prices is less likely, especially if the ECB this morning raises interest rates by 50 basis points as intended. The gold market is also expected to remain under pressure after India’s predictions of a significant contraction in gold imports due to a 5% increase in import duties which is expected to reduce profit margins for retailers. jewelry. Indian Rupee record lows are expected to add further pressure on Indian gold demand. As if there weren’t enough bearish factors in place, the gold market also didn’t benefit from efforts by European diplomats to tighten restrictions on Russian gold exports. Without an “everything clear” on the global economic front, which is unlikely, we expect gold to continue to slide and drag silver with it.
While the palladium price market remains in its recent consolidation zone, platinum has a moderate failure on its charts. We expect both markets to be dragged down by renewed fears of recession. However, it remains extremely difficult to define the direction of the PGM trade, as the fundamental information flow has dried up and the markets do not fear a disruption in the supply of the world’s largest producer of PGMs. Demand signals from the automotive sector are significantly delayed and we suspect that major automakers have piled on strategic supply of PGMs following the price explosion in the first quarter. It is also difficult to predict further downward price action ahead given the record specification and net short positioning of the fund in place. While palladium ETF supply did not contract as much as platinum, both metals continued to see a dominant pattern of divestment overnight. According to the most recent data, platinum ETF holdings fell 10,717 ounces on Tuesday and another 2,657 ounces on Wednesday, leaving holdings down 9.7% for the year so far. Palladium ETF holdings fell by a low of 573 ounces yesterday, but remain 13% lower year-to-date. We continue to be less bearish on palladium than platinum as it built consolidation on the charts above $1835 and did not forge a meaningful rally like platinum did (up 66 $) from last week’s lows.
MARKET IDEAS: Many bearish fundamentals remain anchored, with additional pressure now possible if the ECB raises rates by 50 basis points. We expect the dollar to regain its footing and another aggressive sell-off in gold and silver ETF holdings. The only bright spot for gold prices is the rapid reduction in net specification and long fund positioning. However, the net long position was still as high as 136,589 contracts in the recent report, suggesting that the market may need to liquidate an additional 60,000 contracts to become “largely liquidated”.
The bias is down; a return to the lows of 2022 ahead.
With the copper market posting a $0.24 gain from last week’s low yesterday, very negative macro sentiment, signs of dollar strengthening and generally disappointing U.S. data from the real estate sector, the bear camp has lots of ammo today. Supportive news overnight included a June jump in Chinese refined copper production of 10.3% and a drop in LME warehouse copper inventories of 2,025 tonnes. While the rally in copper prices from last week’s low was partly the result of three days of risk sentiment in equity markets, reports China will reopen some casinos this weekend and talks of a Reduced production of copper mining companies (labour and profit margin pressures) also contributed to the ‘rebound’. We use the term “bounce back” purposely, as China demand fears continue to dominate headlines detailing manufacturing layoffs. The reopening of casinos in Macau does not directly improve Chinese demand conditions for copper, especially with growing fears of widespread shutdowns in major Chinese manufacturing cities this week. The significant net spec and fund short on copper appears to have provided short cover and possibly stop loss buying by those who had sold the market below the $3.25 level. On the other hand, prices for other base metals have recovered somewhat and Polish copper mining company KGHM yesterday recorded an 11% reduction in production and a 3% drop in sales for the month of June. .
MARKET IDEAS: The prospects for a return to an optimistic global economic environment remain very weak. We see Chinese demand for copper deteriorating, with a falling currency signaling a lack of confidence in that country’s economy. Pushed in the market, we would be sellers, but would also advise getting closer to $3.30 rather than $3.25.
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