Written Commentary
COPPER
Unfortunately for the copper bulls, the latest Chinese attempt to support their economy looks to have an indirect and muted impact on copper, with a reduction of trading fees on equities helping economic sentiment but that move is unlikely to impact copper demand in the near-term. However, the reduced stamp tax will help the property markets as transaction costs will be reduced potentially aiding buyers. Since we were highly suspicious of last week’s rally, we are extra negative toward the copper market at prices significantly higher than last week’s lows. While there has been a fresh wave of interest rate fears from the Fed Symposium, the copper market is likely to remain fixated on the Chinese situation. Unfortunately for the bull camp, Chinese scheduled data is mostly absent at the beginning of this week and without another surprise government announcement, we see copper relinquishing last week’s gains.
GOLD / SILVER
While the gold trade this morning is showing positive action, optimism is seemingly based on the slim idea that gold “held up” well against last week’s hawkish Fed guidance. However, hedge fund managers reduced their net long last week and gold ETF holdings last week reduced their gold holdings by a very significant 257,994 ounces. Year to date gold ETF holdings are down 4.2%! Similarly, Silver ETF holdings last week declined by 6.3 million ounces with holdings year-to-date down 3.6%. With the upside breakout in the US dollar at the end of last week stalling the recovery in gold off last week’s low, resistance has thickened. Furthermore, with treasury markets seemingly faltering and the takeaway from the Fed meeting hawkish, the bear should have plenty of outside market forces in their favor. Fortunately for the bull camp, there was a measure of debate on rates at the Jackson Hole Fed Symposium that prevented traders from attacking gold with short sales. However, political uncertainties in the US and Russia should not be discounted as a spark for flight to quality buying of gold and silver. Nonetheless, the path of least resistance is down, and the bear camp holds the ongoing edge. Like the gold market, silver is technically overbought and vulnerable to corrective action which could be accentuated by fundamental selling action.
PLATINUM / PALLADIUM
While the October platinum contract managed an upside breakout at the end of last week due to big picture broad-based global equity market optimism, we see the market vulnerable to a reversal today. In fact, residual strength in the dollar combined with lingering hawkish US Federal Reserve news and some disappointment from the latest Chinese efforts to support their economy should discourage buyers and eventually spark sellers. While a surprise Chinese stimulus could lend support, a hawkish Fed cloud and the lack of confidence in the Chinese government leaves the path of least resistance pointing down in platinum. While the most recent positioning report did not register a fresh record spec and fund short position in palladium, the market remains net short just under the old record level.
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