Weakness in Copper This Morning

COPPER

While the March copper contract has generally maintained periodic higher highs for the move since the first two trading sessions of the year, the spike down failure later last week and a retest of the Friday low early today, shifts the bias slightly in favor of the bear camp. The bull camp should already be on edge waiting for the latest Chinese infection count readings and/or hospital utilization rates as intense exposure during the holidays could result in a temporary spike in infections. According to other trade sources the weakness in copper this morning is the result of a lack of “upbeat” Chinese economic stories in the Press. However, China posted a net increase in 2022 refined copper output of 4.5% which should provide modest fundamental demand support for prices. Additionally, the supply-side of the equation remains definitively in the bull camp with a series of longer-term forecasts for 2023 indicating tight supply will be easily overcome by demand this year with a slight revival in Chinese growth.

GOLD / SILVER

Apparently, the sideways track in the US dollar has prompted some gold longs to exit possibly because of a lack of patience. Gold might be undermined from reports of heavy gold discounting in India with prices at times reaching $42 below the official gold price set for the government import duty. Therefore, Indian consumers are price resistant. Underpinning gold and silver in the early going today is the return from holiday in China and indications that the Chinese economy showed modest improvement through the weeklong holiday. However, a slightly hotter than expected US PCE index reading last week combined with a decline in US consumer spending are a bad combination for the gold bulls. In other words, inflation remains a problem, and yet that did not push the dollar up. Therefore, into the new trading week the charts are bearish toward gold with mixed too slightly bearish silver charts slightly bearish. Perhaps the slight increase in US yields last week prompted long profit-taking along with the markets sideways chop. The bull camp should be cheered by a sharp jump in Chinese net gold imports through Hong Kong as those inflows jumped by 150% from the prior month and reached the highest level since September. Unfortunately for the bull camp, the net spec and fund long in gold as of last Tuesday was near the highest level since last May leaving gold vulnerable to stop loss selling on failures of support levels. Clearly the silver market is tracking other physical commodities and equities in a sign that physical demand remains the number one trade focus.

PALLADIUM / PLATINUM

Over the weekend, the PGM markets were undermined following a Reuters story indicating the historical rally in palladium prices has likely run its course with recycling and substitution with platinum thought to be well underway. On the other hand, disappointing physical and industrial demand for platinum might be offset today with a massive 23,711-ounce ETF inflow last Friday! As indicated already, a Reuters story over the weekend rang the death knell for the palladium market pointing out its extreme high pricing over the last two years, increased recycling and most importantly the shift to electric cars thereby reducing demand for catalytic converters. Fortunately for the bull camp, the palladium market continues to hold a “net spec and fund short” which could arrest the slide started at the end of last week but perhaps not until prices fall to the next chart support level down $17 from last Friday’s close.

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