Copper Prices Tracking Higher

COPPER

Despite discouraging Chinese trade data overnight, copper prices are tracking higher with global macroeconomic optimism flowing from the US yesterday and from indications the Chinese government crackdowns on big tech companies has ended. Not surprisingly, the copper market followed other physical commodity markets higher in the wake of a significant deflation of global macroeconomic slowing fears yesterday. In a more direct bullish development Chinese trade data for June showed an increase in copper imports relative to May which were the highest of this year. The primary deflating force of global recession anxiety was the moderation in US headline and core CPI readings. Certainly, the US Federal Reserve has further rate hikes in store, but the trade is seeing the end of the historic US rate hike cycle and that should remove headwinds to US growth and ultimately to global growth. However, the dominating focus in the copper market remains on all things China, and therefore the relief from better US conditions does not signal a sustained run up in copper prices ahead. On the other hand, with the US dollar falling sharply, that could increase the attractiveness of US copper to international buyers, and it could also increase the attractiveness of international copper supplies from US copper users.

GOLD / SILVER

With a fresh lower low for the move in the dollar, the higher high move in gold is justified. After several days of general lack of sensitivity to weakness in declines in the US dollar, gold and silver prices are exploding in a partial catch-up move. However, adding to the upward track is a significant decline in US treasury implied interest rate yields, signs of moderating US inflation which in turn increases the prospect of a nearing end to the historic US interest rate hike cycle. It should be noted that the decline in inflation and the decline in US treasury yields can send the dollar even lower and potentially become a self-propagating bullish force for gold and silver. As for the potential overbought condition in gold, the latest COT positioning report showed the net long of only 64,000 contracts which is lower than the level seen last month at this time, thereby leaving the market with buying ammunition from the speculative camps. Unfortunately for the bull camp, gold will ETF holdings declined for the 18th straight session leaving year-to-date holdings down 1.8%. Similarly silver ETF holdings also fell by a significant 1.7 million ounces overnight and are now 1% lower year-to-date. Even the silver market has shifted the bias in sentiment to the upside with the largest daily rally of 2023 yesterday and with the market catching spillover lift from gold, weakness in the dollar, falling US interest rates and surging macroeconomic optimism thrown off by equity market gains. Like the gold market, the silver market retains speculative buying fuel with the last COT positioning report showing 14,000 lower net spec and fund long positions versus month ago levels.

PLATINUM / PALLADIUM

Even the lowly PGM markets with their rather discouraging fundamentals have managed to benefit from yesterday’s risk-on flood. However, for platinum to catch a consistent bid and return to $1,000 will require a straightaway continuation of bold “risk on” markets and perhaps signs of an increase in ETF investor interest following the deflating of interest rate fears. However, an upward track in prices is likely to encounter headwinds from disappointing Chinese trade data released overnight. Similarly, palladium benefited from the outside market shift to upbeat economic views but not surprisingly the palladium rally was limited in scope. In fact, given the recent action in palladium we suspect the gains in palladium yesterday were largely short covering from a record short position as opposed to fresh speculative buying.

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