Written Commentary
GOLD / SILVER
Clearly, the gold and silver markets are not benefiting from flight to quality interest early today as the fear of a financial contagion in China continues to rise with Chinese equities plunging sharply this week and in turn beginning to create “margin calls” which can prompt a chain reaction of problems for banks, investors and eventually the government. Sentiment toward gold early today is disappointing to the bull camp as a downside breakout in the dollar has not produced a wave of fresh buying yet. Perhaps the bull camp is put off by the unrelenting surge in global equities as central bank dialogue this week has been very supportive of the bull camp in stocks and gold with most of the major central banks alluding to some form of easing in the coming months. Perhaps gold is waiting for the US nonfarm payroll report to confirm the dollar is headed lower and the drop-in US interest rates this week will remain in place. The bull camp could easily extend recent control today as the monthly US nonfarm payroll report is likely to come in soft given this week’s chain of soft US jobs related news. Other bullish developments for gold and silver came from a Bank of England announcement they were putting “high rates” under review, and news that ECB AI driven economic analysis programs indicated European inflation was falling faster than expected. In conclusion, the US slowing bias is in place, the trend of jobs data this week points to a soft payroll number today with any weakness in average hourly earnings is likely to provide a positive weekly close in gold.
COPPER
With more than 1% declines in Chinese equity markets overnight adding to significant losses from earlier in the week and rising concerns of a financial contagion from margin calls, we are surprised copper is not under more severe selling pressure early today. However, Chinese demand is squarely in the bear camp especially with Shanghai copper warehouse stocks increasing by 36.1% week over week with an inflow of 18,245 tons. On the other hand, the copper market has shown a strong inverse relationship with action in the dollar and prices could be cushioned by lower action in the dollar following today’s US jobs data. While non-Chinese copper demand is not usually as important as Chinese copper demand, perceive cooling of the US, Australian, Swiss, and French economies is a credible threat to global copper demand. However, supply news yesterday should help cushion copper prices with Glencore 2023 production declining and the company thinking this year’s production will be at or 50,000 tonnes below 2023 levels.
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