While copper futures are showing a positive trade early today the market will continue to be limited by the threat of slowing in China from explosive infection counts. However, the copper trade should see fresh support from news flow from a Chinese central economic conference at the end of last week as officials promised boosting the economy was going to be their primary focus in 2023. Another positive for copper prices is further tightening in Chinese copper (industrial) inventories which declined 12,400 metric tons to 81,900 tons which compares to 86,700 tons a year ago. We see the downtrend continuing in copper with the infection situation in China worsening and in turn fostering fresh short sales. In fact, if the Chinese government intention is to allow infections to flare and hopefully burn out, that should keep daily demand destruction pressure on copper prices. In a minimal threat against supply, a Panamanian copper mine has been shuttered over a payment dispute with the government with that mine supposedly accounting for 3.5% of Panamanian GDP. Countervailing a small portion of the threat of declining Chinese copper consumption is last week’s 18.5% decline in weekly Shanghai copper warehouse stocks.
GOLD / SILVER
The gold and silver bulls hope that the constant buzz of rising rates moderates this week with the markets potentially benefiting from talk that the Chinese government will step up to support its economy next year. Unfortunately for the bull camp, gold ETF weekly holdings (since the beginning of July) have posted only two net weekly inflow readings. However, weekly inflows to ETF holdings were exclusively positive from mid-January through the end of April which in turn sparked the belief some investors were returning to precious metal investments. While we think the gold and silver trade has begun to shift to a new paradigm, the recent barrage of aggressive central bank rate hikes and fears of significant global slowing are not conducive to that shift yet. Therefore, gold, and silver look to remain almost exclusively focused on the direction of the US dollar with the bull camp potentially needing a slide and close below last week’s spike low down at 102.875 in the March dollar index to take some lingering control from the bear camp from last week. In counter intuitive thinking recent moderation of key US and UK consumer inflation readings should help underpin gold and silver prices above the December lows as that news punctures bullish sentiment toward the dollar again and provides impetus for interest rates to remain near 4-month lows. Despite the initial plunge in gold prices last week, the net spec and fund long position as of early last week was near the lowest levels since the beginning of August leaving the market technically vulnerable to fresh stop loss selling and a return to key support at the December low of $1,778.10.. While the massive 4-day washout of $1.66 last week in Silver culminated in a very aggressive rejection of the $22.735 level given silver’s reliance on industrial/physical demand the outlook for the global economy remains a headwind for the silver bull camp.
PALLADIUM / PLATINUM
After several months of little if any bullish fundamental news, it was not surprising to see March palladium washout in the face of fear of global slowing from rising interest rates. However, the primary selling force in palladium last week was likely the escalating economic uncertainty of the economic situation in China. According to CNBC, fever clinics in Beijing saw 22,000 patients on Sunday, which was 16 times larger than the previous Sunday. While of little near term interest to the palladium trade, Commerzbank expects palladium prices to return to $2,100 by the end of next year. With the March palladium contract from the COT report mark off price into the low last week registering a decline of $234, the net spec and fund short reading is dramatically understated. Given the prospect of ongoing macroeconomic spillover selling, near term downside targeting in palladium from the weekly charts is at $1,630. Not surprisingly, the platinum market weathered the big picture physical commodity market washout wave last week despite growing fear of softer platinum demand from China.
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