Written Commentary
COPPER
September copper futures declined to under $4.40 per pound today. Last Thursday futures broke out above a one-month downtrend line on the daily chart. However, that breakout proved to be a false breakout now that prices have rolled under that trendline.
Capping recent gains for futures is weak demand from the world’s top consumers. Underscoring this is anticipated weaker demand from the U.S. home building industry after last week’s U.S. housing starts report showed starts at only 1.277 million when 1.373 million were expected.
However, underpinning the market for the long term, are prospects of central bank accommodation.
GOLD
Pressure on gold prices late last week was linked to a stronger U.S. dollar and higher U.S. Treasury yields, following reports of stable U.S. business activity. However, August gold futures advanced to near the $2345 per ounce level on Monday.
Investors are now looking to this week’s economic data, including Friday’s core PCE price index, which is the Federal Reserve’s preferred inflation measure and comments from Federal Reserve officials for clues on the timeline for when the Federal Open Market Committee will pivot its monetary policy to accommodation.
There was news that Swiss gold exports declined in May due to reduced shipments to India and Hong Kong, while gold demand in India, which is the world’s second-largest gold consumer, slowed last week.
Analysts anticipate several major central banks will become more accommodative this year, and some already have, which remains a bullish long term fundamental for gold prices.
SILVER
Silver futures have come under pressure since mid-May due to a weaker industrial outlook. However, September silver futures firmed to over $30 per ounce today. Some of the pressure last week was linked to a stronger than expected purchasing managers’ index in the U.S., which supported hawkish rhetoric from Federal Reserve officials. However, this was partially offset by dovish developments for other major central banks, which limited price declines. Recently the European Central Bank and the Bank of Canada began their rate-cutting cycles, while the Swiss National Bank also lowered interest rates. Meanwhile, the Bank of England is expected to lower borrowing costs later this year.
Looking at the longer term situation for the silver market, the bullish influence of central banks becoming more accommodative is likely to offset the bearish influence of slowing industrial demand for metals. Financial futures markets are now predicting there is a 66% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its September 18 meeting, and a second rate cut is anticipated before the end of this year.
The longer term supply and demand situation remains supportive, since silver is headed into its fourth consecutive year of deficit.
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