Copper Sellers to Outnumber Buyers

COPPER

While the Chinese government is likely attempting to manage headline flow regarding their infection rate, stories regarding increased pressure on the medical system should continue to facilitate serious Chinese slowing expectations and a commensurate drop in demand for copper. Fortunately for the bull camp Shanghai copper warehouse stocks posted a significant outflow of 14,000 tons this week thereby providing support from the ultra-tight Chinese domestic supply front. Even with the Chinese government promising to provide support to the property markets, a labor closure of a Panamanian copper mine and a 13,700 metric ton decline in weekly physical copper inventories across major Chinese copper market storage facilities a fresh lower low this morning projects even lower prices ahead. In the end, without a surprise sentiment reversing headline development, copper prices are likely to finish the week poorly and are likely to extend lower next week. In fact, given the very disappointing Chinese industrial production reading earlier this week sellers should easily outnumber buyers.

GOLD / SILVER

In retrospect, gold and silver prices were knocked back from recent highs because of the barrage of central bank rate hikes this week which in turn served to lift (likely temporarily) the dollar. Not only did central bankers move aggressively, but they also promised to continue to act aggressively well into the future. Not surprisingly, the central bank action/higher dollar fostered broad-based liquidation of many physical commodities as evidenced by the sharp dive in the Bloomberg commodity index. Adding in the escalating fear of serious slowing in China from the infection explosion and the bear camp should be very confident. In fact, with extremely concerning Chinese economic data released earlier this week upcoming Chinese data is quickly being revised even lower. With Indian buyers already skittish, with prices thought to be expensive into the recent highs, the washout yesterday was justified and did not result in bargain-hunting buying overnight. We see downside follow-through action in gold and silver again today given the severe damage posted on the charts yesterday and a minimal upward bias in the dollar this morning. Evidence of the breadth of negative sentiment toward gold is noted with Australian gold mining shares falling by roughly 4% this week. In retrospect, minimal trading interest in this week’s downward thrust (falling trading volume and declining open interest) could indicate a lack of downside momentum. As in gold and other physical commodities, macro signals have turned bearish for silver and damage on the charts has extended this morning with uptrend channel support targeted close this morning at $22.66.

PALLADIUM / PLATINUM

Even though the palladium market has generally tracked on the periphery of most physical commodity markets this week, the deterioration in the global economic outlook likely contributed significant sell orders to the trade yesterday. Going forward, it will be very difficult to quickly reverse fear of slumping Chinese auto catalyst demand especially given precipitous weakness in Chinese industrial production and retail sales earlier this week and from expectations for a significant worsening of infection counts. Furthermore, investors in the form of ETFs are showing no interest in ETF holdings which are likely to end the year roughly 20% lower! In retrospect, with January platinum prices into the high earlier this week were $71 above this week’s lows, the downshift in Chinese economic conditions, a bounce in the dollar, growing global slowing fears and the avalanche of central bank rate hikes all set the stage for a very poor close to the trading week.

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