Written Commentary
COPPER
In addition to outside market pressures from gains in the dollar and surging US interest rates the copper market is undermined by lingering concerns toward the Chinese real estate/construction sectors and by news of a strike settlement in Chile. Apparently, the state-owned mining group Codelco settled with the supervisor’s union thereby removing the risk of losing 1/5th of the company’s copper output. Furthermore, according to the state-owned copper mining group, copper production will finally begin to recover next year. As if the bear camp didn’t have enough ammunition, outside market pressures are likely to continue if a bevy of US jobs data shows strength, as that will add to expectations of further gains in the dollar and even higher US interest rates. Also adding to the bear case is the largest contango since 2000 which seriously reduces the long held bullish argument of tightening global supply.
GOLD / SILVER
With a fresh higher high in the dollar overnight outside market pressure looks to have extended into another session for gold and silver. However, continuing dollar strength is no surprise after Fed speeches yesterday confirmed unanimity among Fed members of the need to keep policy restricted for some time to bring inflation down to the Fed’s 2% targeted rate. In fact, the Fed has definitively stressed the potential long duration of tight policy to achieve their goal. On the other hand, it seems that the trade thinks the Fed will not raise rates for the rest of the year with the CME Fed watch tool pegging the odds of a November rate hike at only 25.7%. On the other hand, the Fed’s Mester suggested one more hike may be needed this year, leaving the prospect of a hike hanging over gold and silver prices. Apparently, growing evidence that the Chinese central bank and some anxious Chinese investors are attempting to build gold holdings because of concern for the Chinese currency and because of the threat against the Chinese financial sector from property sector woes has not cushioned global gold prices. In addition to gold prices in China reaching record levels, the premium of gold prices in China to world markets at times exceeds $100 per ounce. Yesterday it was noted that August Chinese central bank gold holding purchases for mainland China were 28.9 tons in August.
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