Written Commentary
COPPER
Despite very modest initial gains this morning, the bull camp retains control with the threat against supply in Peru becoming entrenched following a decision by the union to go on strike for an indefinite period. The Las Bambas mine has produced 221,160 metric tons of production in the first nine months of this year which is 21.7% above last year which in turn should mean a sustained shutdown should have a material impact on global copper prices. The bull camp should also be emboldened by the production glitch in Panama as the government there indicated it would shut down a mine owned by First Quantum Minerals LTD. Last year the Cobre Mine operating by First Quantum produced 112,734 tons of copper which means the shutdown is material but not overly significant. Apparently, the trade has shaped the Chinese impact on copper prices into a positive by focusing on imports of refined copper instead of on Chinese manufacturing statistics. However, while the 353,000 metric tons of imported refined copper last month was the highest monthly volume of 2023, 10-month imports were running below year ago levels. We suspect the copper market will continue to benefit from the shifting view toward interest rates with financial markets beginning to factor in a rate cut early next year and that in turn has prompted a downtrend in the dollar which sets up a bullish macro market condition.
GOLD / SILVER
Despite gold being overbought, the bulls are still in the driver’s seat with the Feds Waller yesterday giving dovish statements ahead of the Feds blackout period. It should also be noted that several prominent fund/money managers have predicted US rate cuts in the first quarter of 2024 and that combined with a developing pattern of softer US data should leave the dollar in a downward track and in turn leave gold and silver in upward tracks. Along those lines today’s scheduled data could present a temporary dip in gold if US GDP readings match expectations of a minimal improvement. However, trade will be aware of the PCE release this morning as the pace of the economy might be secondary to inflation in deciding US Fed policy. While the markets may be premature, they are factoring a dovish Fed pivot despite the markets only recently pivoting away from a rate hike bias. Keep in mind, the Fed is likely to be more focused on inflation than the pace of the economy as inflation risks are likely more significant than slowing risks. According to the CME Fed watch tool the prospect of a reduction in the Fed funds rate in the January 31st meeting is only 2.1%, with the probability of a cut in the March 20th meeting significantly higher at 40.3%! In conclusion, gold prices are likely to correlate positively with equities and treasury prices and obviously will continue to correlate inversely with action in the dollar.
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