Written Commentary
COPPER
After weeks and months of disappointment regarding Chinese economic prospects, the copper market has seen several favorable Chinese readings and that appears to have sparked fresh speculation of an improvement in Chinese copper demand. It is also possible that the copper market saw a wave of short covering last week following the market’s perceived pivot by the US Fed from on hold to potentially cutting rates late in the first quarter next year. While the copper trade has not focused intently on global copper exchange warehouse stocks, those stocks continued to tighten with Shanghai copper warehouse stocks declining by 27% in just one week. Furthermore, bullish supply forces from the prospect of lost supply from Peru and Panama provides copper with bullish supply and demand arguments. In a longer-term bearish development China reported this morning that they expect around 25% of their solar panel producers to go bankrupt in 2024. The Chinese solar sector has been a major growth market for copper demand.
GOLD & SILVER
While the February gold contract exploded to all-time highs overnight the market recoiled aggressively and at times this morning gold was trading $79 off its high! With the dollar showing early strength and US treasuries showing slightly higher yields, the gold and silver markets obviously received buying from something other than their recent focus. It appears the markets garnered flight to quality buying from two separate issues related to military events. Flight to quality issues thought to be lifting precious metal prices overnight were the ballistic missile attack of two Israeli ships and Chinese accusations that the US Navy “seriously violated” their sovereignty after sailing into the South China Sea. According to Chinese officials they have instructed their Coast Guard to enforce maritime law which could result in weapons exchanges and fear of World War III. With the attack of Israeli ships in the Red Sea taking place before the Chinese incident, it could be argued that the Middle East remains the “primary” concern of the gold market. In an additive development the markets have revisited the central bank gold buying story again with the World Gold Council documenting third quarter central bank buying at the highest level of 2023. In a short-term perspective, today’s US factory orders release is expected to contract, which could reverse the early dollar rally and drop Treasury yields thereby rekindling those recent bullish themes. Historically, gold tends to see blowoff action as bullish sentiment feeds on bullish sentiment and typically results in dramatic overbought technical signals.
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