The bears hold an edge with declines capable of accelerating
New York (Dec 15) Yesterday, instead of an inflationary rally, gold and silver prices fell sharply and signaled their fear of a shift in policy later today. But pressing the short side of gold near consolidation lows of $1,760.20 could prove painful if the take-away from the FOMC meeting later today is less than a doubling of tapering. In a surprising development, the US House voted to raise the US debt ceiling by $2.7 trillion, which historically would have lifted gold and silver prices from an inflationary perspective but instead the markets saw no reaction. Even China is contributing to the global inflation equation with November activity data thought to stimulate both fiscal and monetary support for their economy. It should be noted that overnight a wave of international consumer price and producer price index readings showed inflation equal to the historically hot readings seen in the US yesterday. Today the US will present export and import price readings and retail sales, both of which are expected to produce results that are conducive to inflation and growth. With the dollar forging a fresh high for the move yesterday and extending a pattern of very uniform higher highs and higher lows, the currency impact on precious metals is likely to remain bearish today. Yet another outside market negative for gold and silver is the ongoing corrective action in energy prices. Further risk-off selling in equities could also weigh on gold and silver today. However, fear of the Fed is all-encompassing within the precious metals many other commodities. Therefore, the path of least resistance is down, with those looking to get long advised to implement stops below $1,740. In a developing negative for silver prices, ETF holdings have had several large daily declines recently. Yesterday they declined by 2.5 million ounces and are now only 1.4% higher year to date. A similar stop point for long March silver positions is $21.40.
PGM
While the PGM markets have not been tracking inflationary conditions, the markets were pressured because of fears that the long period of low rates is likely to come to an end later today. However, with the aggressive range-down washout, we suggest the spec and fund net short in palladium will register a fresh record in the COT report that will be released after the close on Friday. On the other hand, without bullish classic fundamental news, an oversold technical condition could become even more oversold. We think the spec and fund net short in palladium could be three times as large as the number of contracts traded in just one session! Like palladium, the platinum market is poised to feel pressure from today's Fed meeting and from fresh technical damage on the charts. Earlier this week J.P. Morgan forecasted platinum prices to average $1,144 next year, while Commerzbank projected the price at $1,100 by the end of 2022, indicating that higher demand for catalytic converters and substitution for palladium will justify higher platinum prices. It should be noted that platinum ETF holdings yesterday declined by a significant 37,569 ounces, for a 1% decline on the day and a 4.9% decline year to date. Near term downside targeting is the even number of $900, but if there is another broad-based risk-off day, we the September low of $892.90 could be taken out.
MARKET IDEAS: The bear camp clearly has control, at least until the US Federal Reserve statement later today is factored into prices. The bull camp is extremely disappointed with the market's discounting of historically hot inflation reading inside and outside of the US. If the Fed is even more hawkish than expected, precious metals prices could freefall.
COPPER
The path of least resistance is down losses could be large
The copper market saw overnight Chinese economic data as disappointing, with the trade clearly focusing on the softer than expected November retail sales number. The trade expects further fiscal and monetary support for the Chinese economy, but in the near-term hope of government support does not appear to be capable of supporting prices. The charts were severely damaged in the overnight action, with prices falling to their lowest levels since early October. Even the supply side of the situation is bearish, with LME warehouse stocks establishing a pattern of daily inflows A labor dispute in Chile has been settled, thereby removing another potential bullish issue. The copper market will likely be negatively impacted by today's US Federal Reserve announcement that is largely expected to include a doubling of the Fed's previously announced tapering pace.
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