Copper Bounce Extended

COPPER

In retrospect, the copper market last week extended the bounce from the late November low off the Chinese relaxation of Covid activity restrictions. Unfortunately for the bull camp, it appears that Chinese infections are surging because of the reduced activity restrictions and that could call Chinese copper demand and last week’s gains into question. Furthermore, the US Federal Reserve is very likely to raise interest rates thereby casting some doubt on a dramatic improvement in the US and global economies. In another definitive bearish development, Shanghai weekly copper warehouse stocks jumped by 13,320 tonnes (20.4%) last week. Even though the most recent COT positioning report understates the size of the net spec and fund long in copper, the net long is not significant enough to produce a large stop loss selling wave.

GOLD / SILVER

Without clear direction from the dollar, a risk-off vibe being thrown off by international equities and looming central bank action, the gold and silver trade are likely seeing some longs exit ahead of impending volatility. However, the trade saw the sharp jump in ongoing claims last week as a development likely to cement a 50-basis point rate hike (instead of 75-basis points) by the Fed in its meeting this week. On the other hand, the Fed decision could be impacted by the US CPI reading which has estimates that are significantly hotter than the estimates for last Friday’s PPI. In retrospect, the US PPI came in hotter than expected and if CPI comes in hotter than expected, those results should be labeled as a sign that inflation lives on. While the trade fully expects the Fed rate hike this week, the presence of rising rates around the globe is certainly a limiting force for gold and silver. Perhaps the gold market is sensing improved demand from India after November Indian fuel demand posted an 8-month high. However, February gold prices are approaching $1,825 which is near the highest level since early August and that could discourage some Asian buyers. While the rally late last week after the COT report was measured should mean the net spec and fund long reading is understated, the net long is very low relative to the last 2 years! With a very strong pulse up last week and silver establishing periodic divergence with gold the silver market appears poised to regain $24 and perhaps fill a gap from April which begins at $23.80 and would be closed with a trade to $24.745.

PALLADIUM / PLATINUM

With the most recent COT positioning report showing palladium retaining a net spec and fund short, a portion of the bounce in prices at the end of last week might have been classic short covering. While the absolute size of the net spec and fund short in palladium is small, trading volume last Friday was a mere 1,546 contracts. If some of the recovery at the end of last week was forged off the hope for improved Chinese demand, the market could fall back from concerning Chinese Covid headlines ahead. While the relaxation of Covid activity restrictions in China contributed to last week’s recovery in platinum prices, news that Anglo-American reduced forward production guidance probably added to the rally. However, the most recent COT positioning report in platinum shows a lofty net long which is understated due to the rally after the report was compiled. From a technical perspective, the large range up move should have momentum and January platinum could regain the $1,050 level. However, big picture macroeconomic conditions particularly in China hardly support strengthening demand views.

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