We see gold and silver trading sharply lower by Friday

Washington (Sept 1)  Apparently the windfall for gold bulls from the Federal Reserve symposium last week has waned, with prices stalling just under $1827 on Monday. In other words, the markets were relieved that the Fed was not actively planning tapering now, but many analysts and traders think it could be right back on the table if this Friday's nonfarm payroll report approaches 1 million jobs gained. A clue to the unemployment report will be offered in this morning’s ADP jobs report, with expectations for a doubling of the jobs reported last month. Even though the market generally expects tapering to begin next year, a seven-digit US payroll gain for the month of August would certainly rekindle talk of it beginning this year. While not a direct negative influence on prices of gold or silver, China has resumed strategic metal sales to deflate critical input prices. This has a dampening influence on all physical commodities. Yesterday, gold ETF holdings increased by 22,922 ounces, but the remain 6.8% lower on the year. December gold fell back sharply from this week's highs, but the market also rejected a setback to $1,800. It is surprising to see gold close higher yesterday in the face of a significant recovery in the US dollar. On the other hand, the dollar remains near 21-day lows, and Chinese economic data this week has been indicative of a slowing economy, which some suggest could produce some flight to quality buying. Fortunately for the bull camp, Chinese and European inflation data remain hot, and while the markets have not seen noted buying off inflation, sellers should be uncomfortable pressing gold lower in the face of rising consumer and producer prices. An ECB official on Tuesday indicated it could be time to consider tapering, which was not surprising after a European inflation reading reached a 10-year high. Without noted forward motion in global economic data or signs that the Delta variant infection flare is peaking, gold could be forced to fight to hold above $1,800. Even though $1,800 appears to be support, we do not rule out a slide to consolidation support down at $1,785.20 if payrolls exceed expectations of a gain of 750,000 on Friday. Silver was also unable to forge a fresh higher high on Tuesday, and with China selling strategic reserves of industrial materials overnight and the buzz toward physical commodities lacking, the path of least resistance is pointing down. Clearly, a key pivot or bull/bear line is seen at $24.00, but without a trade back above $24.28, we will remain bearish.

PGM

Certainly, disappointing Chinese manufacturing and nonmanufacturing PMI readings this week thickened resistance in December palladium at the $2,500 level, and with a private PMI report overnight confirming the soft official Chinese data, demand expectations for palladium should be undermined. However, the market could see a surprise bullish catalyst if China steps forward with additional stimulus for their economy. In a surprising development, ETF holdings of palladium yesterday increased by 18,800 ounces for a one-day jump of 3.5% and a year-to-date gain of 9.4%. The inflow is a significant, but sentiment toward the market remains negative, and it could take a pattern of daily inflows to spark investment-demand optimism. Later today the US will release August vehicle sales, and some analysts are predicting a significant softening of sales because of a lack of vehicles. Certainly, vehicle demand remains strong, but chip shortages continue to restrain production and therefore sales. Near-term resistance is at $2,500 with initial support at $2,439.50. October platinum managed a 5-day high yesterday, but we do not see fundamental justification for prices to rise. ETF holdings declined by a notable 6,998 ounces, a decline of 0.2%. Year-to-date holdings have now declined 0.8%. Key resistance is $1,019.10, with key support at $995.70.

MARKET IDEAS: We see a major junction just ahead for gold and silver, as the Friday morning US jobs report and a sprinkling of jobs-related reports before then are likely to set the September trend. While the Dollar Index was significantly damaged on Monday, it has recovered smartly, leaving the currency influence today negative to gold. Europe saw its highest inflation reading in 10 years, and that prompted ECB officials to suggest tapering might be needed sooner than previously expected. It should also be noted that estimates for this Friday's US jobs report call for a significant jump in new jobs, which could bring the subject of US tapering could back to front-and-center at the end of the week.

COPPER

Disappointing Chinese data strategic sales bearish.

With the Chinese government resuming strategic sales of copper and other industrial materials this morning, the ECB talking about tapering, a private Chinese manufacturing PMI report confirming weak official results from yesterday, and the charts exhibiting a breakdown this morning, a sub-$4.25 in December copper is likely. It was not surprising to see the market spend most of Tuesday in negative territory. While the threat of strikes at three mining facilities in Chile remained in place, other wage deals were reached. Chile continues to move toward increased royalty charges on copper production, which could increase copper costs down the marketing chain and raise breakeven prices on production inside the country. Fortunately for the bull camp, the most recent COT positioning report showed a very modest spec and fund net long of 13,197 contracts, and a washout below $4.25 could leave the specs and funds mostly liquidated. Both LME and Shanghai copper warehouse stocks remain relatively low, which reduces the negative impact from Chinese government strategic copper sales. So far, the market has absorbed the strategic sales without significant pressure, but today's range down move in the face of positive global equity market action suggests the sales are not without some negative influence. The soft Chinese PMI reading from a private source (Caixin) is certainly adding to this morning's weakness.

MARKET IDEAS: Copper has faltered under the combination of Chinese strategic sales, confirmation of soft Chinese PMI readings and from fresh chart damage. We see the market being pinned down near $4.20 unless China announces stimulus efforts, Delta variant infections start to fall, or the US posts a strong vehicle sales report later today.

KitcoNews