Written Commentary
BASE METALS
Copper: Copper prices are little changed on the LME at $13,798, COMEX prices are up 0.25% to $6.49. LME copper is set to end July up around 3% and enters August with supportive fundamentals in the form of low warehouse inventory outside the US and strong demand for AI infrastructure buildout. However, that leaves the market susceptible to shifts in demand and performance in the tech sector. Available inventory in LME-registered warehouses dropped 50% in July and are currently at 101,650 tons, the lowest since mid-January.
The premium of cash LME copper continues to reflect tightness and solid demand in the market, at $40 a ton on Thursday it hit a seven-month high. This a sharp reversal of a $49 discount at the beginning of July. Demand in China was modest today as the yuan rose to a three-year high against the dollar, though factory data disappointed. The Yangshan copper premium continued to hold near $112 a ton, easing from last week’s $115. Factory activity in the country fell into contractionary territory, with the official manufacturing PMI falling to 49.2 from 50.3 amid shrinking new orders and weak domestic demand.
SHFE inventory sits at less than 70,000 tons, the lowest since February 2024. Meanwhile, COMEX stocks are at a record 644,465 tons, almost double the LME and SHFE inventories combined, as copper continues to flow into the states ahead of possible import tariffs. In recent weeks, the copper market has been dictated by macro sentiment, though recent price action has suggested sentiment is now being driven more so by supply tightness.
Zinc: Zinc rose 0.2% to $3,630.
Aluminum: Aluminum lost 0.5% to $3,178.
Tin: Tin was unchanged at $55,000.
Lead: Lead fell 0.1% to $1,894.
Nickel: Nickel fell 0.1% to $1,894.
PRECIOUS METALS
Gold: August gold contracts fell overnight as the dollar rebounded while interest rates rose. However, gold is heading for its first monthly gain in five months. Gold has struggled to find momentum amid the current macro backdrop, remaining in a corrective phase of what is a structural bull market. Thursday’s data showed modest real consumption growth with a very soft monthly inflation pulse. Despite the “benign” headline figures in Thursday’s inflation and GDP data, consumer spending rose 3.2% in Q2, up from 0.5% in Q1. Furthermore, sales to private domestic purchasers, a key measure of underlying demand rose 3.9% in Q2 buoyed by tax cuts and strong demand. With inflation still resting well above target, alongside upward inflationary pressures in the recent data we believe the case for a Fed hike in September remains intact.
The market has reconsidered its post-FOMC rate hike doubts modestly, with Fed-tightening expectations rebounding as September’s meeting is now priced at a 69% chance of a hike compared to 30% odds following Warsh’s press conference. Regardless, the dollar has lost some support in interest-rate differentials, which have been a dominant driver of dollar direction in recent months. The market has now repriced a December rate hike, reflective of DXY’s move above the 100 level, which is the biggest indicator of market expectations that the Fed will hike rates this year. That dynamic will leave DXY vulnerable to the divergence in policy expectations between Fed and ECB.
Silver: September contracts are down 2.8% to $57.31.
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