OUTSIDE MARKET DEVELOPMENTS: Global equity markets have seen enough calm and declining anxiety for a “risk back on” mood across many market sectors. On the other hand, the prospects for increased fiscal spending has kept Treasuries on the defensive, as Bonds reached a new contract low more than 8 points below their overnight highs. The Asian session featured Japanese machinery orders that were expected to see a notable decline, but the 3.3% drop might have been less weak than many in the trade expected to see. The European session saw French September industrial output readings drop by 1.1%, which was probably a slight bit weaker than expected. The North American calendar will start out with a weekly reading on US initial jobless claims, which are forecast to come in slightly below the previous 265,000 reading. The September Canadian New Housing Price Index is expected to hold steady with August’s +0.2% reading. St Louis Fed President Bullard will speak during mid-morning US trading hours. Earnings announcements will include Walt Disney, Petrobras and NVIDIA reporting after the close.
GOLD / SILVER: Yesterday afternoon gold gave up almost all of the election knee-jerk reaction gains, as a sharp recovery in the stock market boosted risk appetites and pulled the safe-haven bid from the precious metals. However, this morning something seem is amiss, given that global equities were higher and the US was moderately higher and yet December gold was making gains of roughly $15 an ounce. With the gains in equities this morning, some might expect to see new all-time highs before the end of this week, and that would surely deflate the attempted rally in gold from yesterday’s lows. Gold also exhibited a major technical failure by trading up through a long term trend line on Tuesday night and then backing off heavily from those levels. The strong rally in the stock market may have restored the Fed’s ability to raise rates in December, and this could limit the flight to quality hopes of the bulls over the near term. The world’s largest gold ETF saw their holdings rise by 5.34 tonnes on Wednesday and reach their highest levels since October 25th, and the news that India was removing some large currency notes from circulation is expected to spur some Indian gold buying. The Indian currency news is old, as it was originally released during the election, but that action could stir up additional demand on top of seasonal purchases. It is also possible that gold and silver are catching some lift from a fresh conflict in Ukraine between Russian and Ukrainian interests in the Crimea area. Other potentially supportive issues were news of another Nigerian pipeline attack and the US post-election protests. All things considered, we see the bull items as temporary impacts.
PLATINUM: The minimal slide in platinum group metals through the turmoil this week and their capacity to stay within striking distance of this week’s highs hints at ongoing bull control. While the control may not be definitive, it would seem like the PGMs offer enough haven and industrial capacity to leave prices supported in a weak uptrend. In other words, the risk-on vibe that is coming with big equity market gains could drag platinum and palladium higher off hopes for renewed industrial demand, while any return to grief off the election might allow PGM prices to draft off renewed strength in gold. We think the path of least resistance is up off normalization of economic conditions but also because of positive leadership from other industrial metals like copper. It should also be noted that Platinum ETF holdings this week have reached their highest level since June, while palladium holdings have eroded slightly. From a technical perspective the PGM sector continues to see divergent action, with palladium regaining the upper hand in the sector yesterday as it posted a fourth positive close in a row. It has gained more than $60 over that timeframe.
TODAY’S MARKET IDEAS: More choppy action is expected ahead, but we doubt the bull case has solid legs. Certainly US protests are cause for some interest in gold and silver this morning, but unless there is widespread violence and fears of a chain reaction, we have to think that tempers will cool beyond the end of this week. With the Dollar showing some weakness, the precious metals are also getting the benefit of currency action. On the other hand the Dollar is down, but it remains within striking distance of recent high levels. A rise above 98.70 could turn a minimally supportive Dollar tilt into a more significant negative for gold. We think that the primary direction will be down over the coming 2-3 sessions. We will remain bearish as long as December gold fails to run above to close-in resistance points of $1,293 and $1,296.
NEW RECOMMENDATIONS: Buy February $1,270 put back at $20 now that the volatility of the election has passed. Use an objective of $69, and risk the trade to a close below $10.