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Broad Bear Case for Copper


While copper has attempted to hold up against fading hope of a lessening of Chinese covid activity restrictions, seeing the Chinese GDP report delayed until after the central committee meeting adjourns combined with deteriorating global copper demand conditions presents a very broad bear case. Fortunately for the bull camp, LME copper warehouse stocks have seen several large daily declines this week and there is a fresh supply threat from Peru where protesters have blocked a key mining corridor to the Las Bambas Mine. Another internal supportive development yesterday came from Antofagasta which posted lower copper production over the first 9 months of 2022. However, both Antofagasta and the International Copper Study Group expect higher 2023 production with the ICSG forecasting a 2023 world refined copper surplus of 155,000 tonnes.

copper tubes


While the December gold contract managed to reject the initial lower low for the move overnight and the Dollar is lending some initial support, the path of least resistance remains down with an upside breakout in US treasury yields to the highest levels since the financial crisis in 2008 dominating market sentiment. With a major Indian festival gold demand window just ahead and gold prices near two-year lows, we suspect Indian bargain hunting buying will present in the headlines in the coming sessions. With the gold market seeing its net spec and fund long jump 45,000 contracts in last week’s report, the sharp failure at the $1,650 level this week might have been stop loss selling from bottom picking late last week off the temporary consolidation at $1,650. On the other hand, into the low today, the December gold contract was trading $50 below the level where the last positioning report was measured and that could mean the net spec long has been brought down to the lowest levels since May 2019. In the near term, we see December gold headed below the late September low down at $1,622.20. Relatively speaking the silver market has held up impressively in the face of this week’s washout in gold with the December silver contract holding well above last week’s lows again this morning. While the $18.00 level might be seen as some form of value, fundamentals for a solid bottom are not apparent.


Yesterday, December palladium severely damaged its charts with a spike down move to the lowest trade since the contract low on September 6th. While the market has held well above yesterday’s spike low this morning, it appears that the $2,000 level has become resistance instead of support. However, with the palladium market as of early last week holding a net spec and fund short of 810 contracts and the December contract into the low yesterday trading $200 lower from the COT report mark off, the palladium market is likely approaching a “mostly liquidated” spec and fund long positioning. On the other hand, a “mostly liquidated” spec and fund long position might only mean less aggressive downside action from stop loss selling, as fundamental justification for bottom picking remains elusive. In the near term, we see unreliable support at $1,970. With the January platinum contract into the Tuesday high $64 above the October low, the market holding a net spec and fund long of 8,569 contracts early last week, a significant 5,172-ounce outflow from ETF holdings yesterday and significant ongoing outside market pressure remaining in place, the washout yesterday likely signals a further decline today. Near term downside targeting is seen at $861.90.


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