Written Commentary
COPPER
The copper market continues to track opposite of classic daily fundamental developments, with prices today rising despite a second consecutive build in daily LME copper warehouse stocks and even more surprisingly in the face of a third straight week of large Shanghai copper warehouse stock inflows. In fact, Shanghai copper warehouse stocks have now increased nearly 16,000 tons in three weeks and in the process, inventories have nearly doubled from levels seen in December! However, copper demand hope has been stoked by consistent signs the US economy is holding together, overnight news that Ukraine copper imports in 2023 increased by 120% and from a significant 16.6% jump in Chinese December refined copper output. On the other hand, it should be noted that signs of softening demand at European refiners tempers global copper demand prospects early today and copper is likely to continue to see headwinds from action in the dollar and US treasuries.
GOLD / SILVER
While the gold and silver markets are showing initial strength this morning, outside market action leaves the bear camp with a prevailing edge. In fact, despite initial weakness in the dollar, disastrous retail sales readings from the UK should leave the dollar in favor and physical commodities like gold off balance. Furthermore, US treasury yields have clawed higher this week with yields overnight reaching the highest level since December 13th. Looking ahead to today’s US trade, expectations for US data also favor dollar bulls and therefore data should also favor gold and silver bears. From a longer-term perspective, the World Gold Council report on the 2023 Chinese gold market should lend some support to gold as the Chinese central bank remained in a gold reserve building pattern and hope of recovering Chinese growth this year and last year’s record domestic gold premium suggest gold will at least see steady Chinese retail demand this year. Fortunately for the bull camp in gold and silver, hope for a US first quarter rate cut has not been totally extinguished but given the flow of positive US economic data from jobs to retail sales over three weeks, we think the trend will remain up in the dollar and US treasury yields.
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