The bias is down but outside impacts are neutral early on

GOLD / SILVER

Despite a $128 rally in July and August, the gold market so far has not suffered a severely damaging reversal from this week’s high. On the other hand, the charts have shifted bearish, the dollar did not extend downward off the PPI report as it did after the CPI report, and recession fears have not been altered markedly. However, seeing June South African gold production come in 28% below year ago levels should help underpin prices against the recently established corrective tilt. Fortunately for the bull camp, gold ETF holdings ended a seven-day string of outflows yesterday with an inflow of 52,771 ounces. Certainly, gold and silver are relieved with the potential for the US Fed to slow (not halt) rate hikes. Even though Treasury market action since the middle of June has been supportive of gold and silver, that support has turned into pressure with yields overnight reaching their highest level since July 21. From a technical perspective, October gold has a key pivot point today from a 3-week-old uptrend line at $1,792.30. For the bulls to return control of the trend, it would probably require a close in October gold above $1,804 today. Critical support in September Silver comes in at $20.02 today, with a trade back above $20.61 needed to turn the charts back to the upside.

PGM

The upside extension yesterday in palladium to its highest level since May 2 indicates a continuing bull case. Some traders suggest that auto production is now expanding at a quicker pace with chip manufacturing regaining momentum, and they are hopeful that the US chip sector assistance program will stimulate even faster output. In another supportive development, Stillwater has cut its production guidance by 60,000 ounces for 2022 because of floods around their Montana facilities. Certainly, the palladium market has become short-term overbought with a $314 rally in just six days. However, keep in mind that the most recent COT report showed the spec and fund reading for palladium showed a net short of 2,742 contracts, which is within striking distance of the record net short of 4,511. Near term upside targeting in September palladium is the beginning of a gap from April at $2,320. The chart action in the platinum market is even more impressive, with a rally of nearly $100 to the high yesterday. Close in, thin resistance today is seen at $977.90.

MARKET IDEAS: We expect near term trends in gold and silver to extend on the downside and platinum and palladium to extend on the upside. However, gold and silver could be “saved” if the dollar forges a fresh new low for the move today, Treasury prices recover sharply, and equities extend recent strength. The more likely outcome is the October gold will fail to respect $1,792 support, which would then project the market down to $1,781.

COPPER

We see copper consolidating within a $3.60 and $3.78 range

Despite weakness in Chinese equity markets overnight, a 20% increase in weekly Shanghai copper warehouse stocks, and a minimal rise in LME warehouse stocks, September copper made a higher high for the move overnight and appears poised to climb above $3.75 in the coming sessions. Countervailing the Shanghai warehouse stock inflow is proof that 200,000 tonnes of copper concentrate is indeed missing from a Chinese port storage facility. While September copper has become technically overbought with another new high for the move and a five-day rally of $0.32 this week, in the last COT report the market maintained a lofty spec and fund net short of 26,500 contracts. Therefore, we expect copper to retain additional speculative buying capacity, especially after news that Antofagasta is lowering its production guidance because of the potential adverse impact from onerous changes in the Chilean tax structure.

MARKET IDEAS: While the charts look impressive and overall macroeconomic psychology improved notably following signs of softening US inflation, the demand side of the copper market has now traversed soft UK GDP and industrial production readings without stumbling. Uptrend channel support from the last two weeks’ lows provides support today at $3.62, with closer in support seen at $3.65. Near term upside targeting is projected at $3.7805.