Copper Bear Camp in Firm Control

COPPER

Obviously, the downside to breakout to the lowest levels since early August leaves the copper bear camp in firm control this morning especially with weakness this week accompanied by rising open interest. Fortunately for the bull camp, better-than-expected Chinese nonmanufacturing PMI readings offset disappointing manufacturing PMI readings or the outlook for Chinese copper demand would be even more bearish. It should be noted that China will release its Caixin Manufacturing PMI reading for December during tomorrow’s US market closure with expectations calling for a minimal recovery in that data. We suspect a portion of the washout overnight was spillover from weakness in the Chinese spot copper cathode market with another measure of selling pressure coming from technical stop loss selling following the failure of recent consolidation low support at $4.07. While the near-term trend in copper is pointing down, with a likely target of $4.01, the bull camp should take comfort in the prospect of a fully liquidated net spec and fund short positioning soon (if adjusted for the slide after the latest report). In fact, the net spec and fund long in copper of only 7,739 contracts is 70,000 contracts below the net long seen in late May. Therefore, with a continuation on the downward pulse it is likely the copper market will shift into a net spec and fund short in the next COT report release.

PRECIOUS METALS

Fortunately for the bull camp in the gold and silver markets, conditions have thinned and bearishness toward metals has moderated. Also, fortunately for the bull camp the dollar has shown periodic weakness and US treasury yields have dipped from the highest levels of the year. Nonetheless, the gold market has posted the strongest annual gain in 14 years and long term speculators remain interested despite the recent moves to the sidelines by a noted portion of the bull camp. It should be noted that a large measure of the weakness in gold has been the result of the Trump victory which has generally left the trade fearing global slowing and a stronger Dollar in the event of a US/Chinese trade war. In addition to a developing pattern of lower highs and lower lows, gold ETF holdings yesterday fell by the most in four months with sales of 336,909 ounces. Therefore, gold ETF holdings are likely to finish this year with net sales approaching 3 million ounces! Furthermore, the net spec and fund long in gold remains burdensome in the latest COT report but it should be noted that a trend of long liquidation has settled into the gold market potentially setting the foundation for a low in early January. With a major range down extension yesterday, a close near the low of the day and a lower low this morning, the path of least resistance is down in silver. While silver ETF holdings also declined overnight, silver is likely to finish the year with net “purchases” of roughly 14 million ounces. Also, fortunately for the bull camp the net spec and fund position in silver continues to plummet with this week’s reading likely overstating the net long especially given the $1.00 liquidation since the report was calculated.

Interested in more futures markets?  Explore our Market Dashboards here.