Written Commentary
PRECIOUS METALS
Gold: December gold contracts are under pressure from a global rout in bonds, adding further downward pressure on gold in the wake of Warsh’s speech and July’s PCE data. Japan’s 10-year JGB yield has broken 3% for the first time since 1996, while the US 10-year is near 4.8% and the 30-year around 5.3%; German, French and UK benchmark yields are likewise at multi-year or multi-decade highs. The renewed US–Iran strikes have pushed Brent above $92 and European gas to its highest since March. The main issue is a rising term premium as investors demand more compensation for fiscal supply, policy uncertainty and the risk that inflation remains structurally less stable. This comes after Warsh moderated his views significantly more than his previous comments in his Jackson Hole Speech, though the rise in oil and renewed strikes between the US and Iran have unwound some of the recent declines in yields at the long end of the cure. Given that Warsh specifically reaffirmed that PCE index is the Fed’s target, last week’s data reinforces the hawks camp at the FOMC. Money markets have significantly increased odds of a September hike (65%).
Silver: September contracts are down 2.9% to $64.58.
BASE METALS
Copper: Copper prices on the LME initially rose to its highest level since January at $14,441 before falling 0.6% to $14,213 as a stronger dollar weighed on prices. In the US, prices down 1.4% to $6.50. The copper story is still little changed. Fundamentals of tight LME-warehouse stocks and ongoing supply worries are still in place while a materially stronger dollar in the wake of Warsh’s Jackson Hole speech and last week’s PCE data have led to some profit-taking. Low LME inventories and ongoing supply worries are likely to continue to underpin prices, while shipments to the US amid speculation over potential US tariffs is likely to keep available copper in LME warehouses low. LME stocks saw a significant decline of nearly 50% in between June and mid-August, though 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 as of last Friday. However, inventory remains low and around 55% of the total metal in the LME system are on cancelled warrants.
Zinc: Zinc gained 1.3% to $3,935.
Aluminum: Aluminum rose 0.6% to $3,260.
Tin: Tin dipped 0.3% to $55,050.
Lead: Lead little changed at $1,906.
Nickel: Nickel shed 1.3% to $16,650.
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