Written Commentary
COPPER
Apparently, the copper trade has been looking through the clouds hanging over the Chinese economy and has come away with a positive view. Adding to the upside track in copper is a pattern of declining LME copper warehouse stocks this week and more importantly a 4.2% (12,547 ton) decline in weekly Shanghai copper warehouse stocks. Part of the strength in US copper prices is simple catch up buying to the record Shanghai copper price overnight and a two year high in LME copper. Surprisingly, the copper market held in positive territory yesterday despite news that Southern Copper Corp. saw a quarter-over-quarter production increase of 2.6% primarily because of an 8% jump in production at the Buena Vista mine. The increase in production from the company was 7.6% versus the same quarter last year, with their first quarter’s net sales showing growth of 13.3%. In the end, with another higher high for the move this morning, the copper bull camp reiterates its control of the trend.
GOLD & SILVER
Once again, noted strength in gold and silver prices appears to be taking place in a vacuum, with little change in US interest rates, the dollar and energy prices overnight. However, the bull camp is likely benefiting from a surprise jump in Chinese first-quarter gold consumption which increased by 5.9% from year ago levels. Apparently, mainland China March gold imports through Hong Kong increased by 40% from February giving credence to news earlier this month that Chinese investors were seeking to hold gold to avoid weakness in the domestic currency. Fortunately for the bull camp, yesterday the dollar did not strengthen on bullish dollar data that could have sent it sharply higher. While the PCE reading yesterday was the preliminary reading compiled within the quarterly GDP report, without downtick from 0.3% in the primary monthly PCE reading today, the concern of residual inflation should remain intact. However, looking back to the action over the last several months, the most consistent correlation between surging gold prices and headline developments points to a primary focus on the uncertainty flowing from the Middle East. Therefore, it is likely that a noted portion of this morning’s gains are the result of reports of intensified Israeli airstrikes on Rafah in Gaza. In today’s action, we suspect the monthly PCE reading will have a short-term impact, with the trade focus turning back to the situation in the Middle East and the potential for weekend turmoil.
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