Written Commentary
BASE METALS
Copper: Copper prices fell as dollar strength weighed on the metals complex ahead of US jobs data on Thursday. Benchmark three-month copper on the London Metal Exchange fell 1.3% to $13,208, while COMEX copper prices are 1.8% lower to $6.08. Also weighing on the metal is the lack of an announcement by US officials to make an announcement over potential tariffs on refined copper. The Trump administration had originally set a June 30 deadline to announce potential tariffs on the metal. Still, tariff risk is still present and should not be discounted.
However, offering support for metals is data out of China, which showed that the manufacturing sector expanded in June to complete its strongest quarter since 2020. The RatingDog China General Manufacturing PMI, compiled by S&P Global, eased to 51.7 in June from 51.8 in May but was above forecasts for a reading of 51.6. The average PMI reading for the second quarter was 51.9. Yao Yu, founder at RatingDog said “the manufacturing sector maintained a steady expansion in June, supported by sustained new order growth, easing cost pressures and improved labor market conditions.” This follows the official PMI survey from Tuesday, which saw the index rise to 50.3 in June from 50.0 in May, driven by demand for computer chips and AI products. Manufacturers surveyed remained optimistic about the year-ahead outlook, though confidence softened to its lowest since January.
A stronger dollar and hawkish-repricing in Fed policy expectations are the main pressures for metals and weigh on sentiment for traders. Still, fundamentals for copper remain unchanged with lower LME inventory, shipments to the US, and broad-demand for AI infrastructure and energy transition expected to underpin demand. However, the macro environment for metals remains challenging, as US rate expectations continue to have a downward effect on prices. Oil prices will need to drop substantially and evidence of transitory inflation are likely needed to reduce rate hike expectations to reduce inflation expectations.
Zinc: Zinc dropped 1.2% to $3,510.
Aluminum: Aluminum shed 0.4% to $3,072. Aluminum prices hit their lowest level in four months as funds liquidated bullish positions on worries over higher US rates and uncertainty the Iran conflict.
Tin: Tin gave up 0.9% to $51,100.
Lead: Lead added 0.1% to $1,877.
Nickel: Nickel rose 0.5% to $16,365.
Set of copper pipes of different diameter lying in one heap
PRECIOUS METALS
Gold: August gold contracts moved lower, appearing to find support at the $4,000 level ahead of tomorrow’s payrolls data. Gold remains under pressure from dollar strength and recent moves in Treasury yields, with the 10-Year yield up 12bps this week to just under 4.50%. The strength in the dollar and yields is coming from market expectations of a rate hike from the Fed by year-end. While this dynamic has been priced in recent weeks, fresh support comes amidst optimism over the US economy, furthering demand for dollars. Tomorrow’s payroll data is likely to shape Fed expectations and the dollar could see gold break below $4,000 if hiring continues to surge. A reading below consensus is likely to push rate hike expectations into 2027, see the dollar slip, and ease some pressure on gold. Recent dynamics continue to show that gold is moderately correlated (negatively) with moves in the dollar and the 10-year TIPS yield
The failure for gold to hold recent gains highlights the current sentiment that macro factors are likely to continue to pressure the metal. Focus for gold will center around Thursday’s jobs report. Money markets have been broadly unchanged in the expectations for monetary policy since last week, pricing around 38 bps of total tightening and are fully priced for a hike in October. We slightly favor a Fed rate hike in Q3, over a hold. However the outlook remains dependent upon inflation data rather than labor data in our view.
A hawkish-Fed has led investors to fade the debasement theme present earlier this year and late last year. Fed rate hike potential has also weighed on ETF demand, which is rate-sensitive. However, longer-term central bank reserve diversification is likely to offer firm support; a recent World Gold Council survey said a record 45% of the 76 central banks surveyed between February and May expect to increase their own gold reserves over the next 12 months.
Silver: July Silver is down 0.8% to $59.98.
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