Written Commentary
BASE METALS
Copper: Copper prices on the LME gained 0.6% to $14,365, while COMEX prices are up 0.58% $6.63. Focus in the metals market remains centered around the Fed’s Jackson Hole symposium and Warsh’s subsequent remarks. The copper story has been little changed in recent days, with fundamentals still in place while a stronger dollar in the wake of July’s PCE data has lead to some profit-taking, though today’s move higher suggests focus is back on the supply story. Underlying fundamentals of low LME inventories and ongoing supply worries are likely to continue to underpin prices, available copper in LME warehouses had fallen nearly 50% in between June and mid-August, though stocks have since rebounded modestly. That rebound has lowered the premium of the cash contract to the three-month forward from $545 in mid-August to around $70. However, inventory remains low and around 55% of the total metal in the LME system are on cancelled warrants. In China, SHFE copper stocks fell over 19% to just over 72,000 tons.
Zinc: Zinc was up 1.2% at $3,929, a four-year high as available LME stocks have fallen to 75,600 tons, equivalent to two days of global consumption. LME data showed 19,125 tons of cancellations overnight. The LME cash contract is commanding a $200 premium over the three-month forward, highlighting tightness in near-term prices. However, higher prices could lead to traders shipping the metal back into LME warehouses to take profits, which would relieve some supply worries.
Aluminum: Aluminum added 0.2% to $3,240.
Tin: Tin inched up 0.1% to $55,420.
Lead: Lead slipped 0.3% to $1,910.
Nickel: Nickel rose 0.6% to $16,975.
PRECIOUS METALS
Gold: December gold contracts continued to feel modest pressure in the wake of July’s PCE data as markets await Warsh’s remarks at the Fed’s Jackson Hole Symposium later this morning. The market is looking for more clarity regarding the bank’s reaction function given Warsh’s abandonment of forward guidance, raising questions over what inflation threshold is required for the Fed to move higher and how the bank views the rise in long-end yields. Data this week has fallen into the hawks camp, with July’s PCE print, showing both headline and core PCE readings rise, while second-estimate GDP figures revised private domestic final demand higher to 4.2%, real GDI up to 2.2%, and quarterly PCE also revised higher. The report largely reflects that the economy retains enough domestic-demand resilience to keep inflation risks elevated. Largely, gold is trading in a holding pattern, with its next move dependent on signals regarding a potential September rate hike from the Fed. Markets are pricing a 36% chance of a hike next month and see 28 bps of total tightening by year end.
Silver: September contracts are up 1.48% to $70.46.
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