Written Commentary
COPPER
With the rally last week in copper of $0.11 and disappointing Chinese growth readings overnight, the aggressive correction this morning is not surprising and is likely to extend with a test of $3.80. In fact, the trade continues to be disappointed with the lack of broader-based Chinese stimulus spending on infrastructure. Furthermore, after seeing LME copper warehouse stocks venture near 17 1/2-year lows they have had two days in a row of inflows with total gains of 4,450 tons while weekly Shanghai copper stocks last week showed an inflow of 8,052 tonnes. However, a bullish supply-side development from the weekend came from Zambia where their budgeting estimate predicted 2023 copper production to decline from 763,550 tonnes last year to only 682,431 tonnes this year. From a technical perspective, the rally last week might have burnt excess buying fuel with the hedge funds in the latest positioning report cutting their long position to the lowest level in 5 weeks. On the other hand, the net spec and fund short positioning in copper last week expanded slightly and is at a moderately oversold level which could provide stop loss buying on a trade back above $3.96. However, the copper market will take fresh direction today from Chinese GDP, industrial production, and retail sales readings for June which generally disappointed the markets. Therefore, the copper bears look to see an ongoing benefit from soft Chinese data.
GOLD / SILVER
While the initial trade is not definitive, we give the edge to the bear camp as dollar declines are insignificant, treasury prices are up minimally, and many commodities are tracking higher. While the Chinese data on its face was not particularly discouraging, the growth rate in China was significantly softer than in the prior quarter with Chinese retail sales posted a gain of 3.1% versus the 12.7% gain in May. In retrospect, last week’s rally in gold was undersized considering the magnitude of dollar weakness and the significant moderation of US interest rates. In fact, at the low last week in the dollar, the currency index from July 6th posted a decline of 400 points with should have ignited gold for a massive rally. However, the silver market appears to be the leadership market indicating precious metals are likely to focus on classic physical commodity market fundamentals associated with the forward view on industrial and investment interest. As indicated already, the silver market clearly outperformed the gold market last week with a low to high rally of $2.31, especially with gold not fully benefiting from a massive slide in the dollar. Ho
PLATINUM / PALLADIUM
While the platinum market is starting off weaker this morning, the bull camp should be emboldened by the prospect of lower mined production and from a net inflow to platinum ETF holdings last week of 20,203 ounces which puts the year-to-date gain at 7.2%. Fear of softer supply was reiterated from Anglo American Platinum warnings of declines in profits due to the power crisis in South Africa. Apparently, the mining company expects a 20% drop in output. While October platinum last Friday failed to take out the high from last Thursday, the platinum charts have shifted positive with the market managing a gain of $100 from the late June lows in an environment offering little in the way of favorable demand news. However, platinum probably drafted some lift from weakness in the dollar and because platinum ETF holdings have displayed relatively positive ETF inflows recently. We suspect platinum will trade somewhat in sync with global equities and will see marginal windfalls from further weakness in the dollar. As indicated already, China released a flurry of economic data overnight with GDP and retail sales disappointing and that probably prompts some selling of platinum and palladium. Therefore, the palladium market should give back the gains forged last week but given a record net spec and fund short positioning were most likely short covering instead of fresh bargain-hunting buying.
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