Written Commentary
COPPER
Copper futures declined yesterday to their lowest level since May 9, testing the $4.50 per pound level, which almost fully erased May’s rally that took prices to a record high of near $5.20. Much of the recent weakness was due to evidence of reduced demand in the near term. However, prices are higher today and are still 15% higher year-to-date.
There are predictions of upcoming supply shortages since major copper miners are unlikely to ramp-up production anytime soon and are more inclined to turn to merger and acquisition activity rather than committing capital to new mining projects.
The longer term outlook remains supportive in light of copper’s key role in electrification in grid-scale energy storage and data-center infrastructure.
GOLD
Gold prices advanced to a two-week high on hopes of a Federal Reserve interest rate cut and yesterday’s soft U.S. ADP employment report. ADP data showed U.S. private payrolls increased less than anticipated in May, and the previous month’s data were revised downward.
Weaker economic growth and cooler inflation in many countries indicates central banks are on a path to cut interest rates. This is positive for non-yielding gold, which tends to appreciate when interest rates decline. The Bank of Canada cut its key policy rate yesterday, its first reduction in four years, while the European Central Bank lowered its key rate today.
Traders now await Friday’s non-farm payrolls data to assess the U.S. economy’s health and will be looking for indications for the Fed’s potential rate-cut timeline.
The main trend for gold is higher.
SILVER
Silver prices increased due to yesterday’s decision by the Bank of Canada to lower its key interest rate and also today’s announcement by the European Central Bank to reduce its key interest rate.
Traders continue to assess the industrial demand for silver, since recent economic reports are suggesting the economy is slowing, which will likely limit industrial demand for silver. Potentially offsetting weakening industrial demand is the increasing probability that the Federal Reserve will pull forward a pivot to accommodation. In addition, other major central banks are on track to cut key interest rates in upcoming decisions.
The longer term supply and demand picture remains supportive, since silver is headed into its fourth consecutive year of deficit in light of tightening supplies.
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