Written Commentary
COPPER
With the reversal/recovery on Friday extended aggressively this morning, the copper trade has found renewed vigor and could test contract highs this week. Apparently, Chinese treatment charges have increased but remain “negative” which seems to imply the reduced smelting capacity in China will remain off-line for now. Reports from China suggest Chinese smelters are turning to local scrap copper which have seen a significant increases in supply in the wake of this year’s dramatic appreciation in LME and international prices. In fact, the explosion in global prices is thought to be drawing out Chinese refined copper exports. Last week the trade estimated Chinese smelters could export 50,000 tons of copper this month. With July copper this morning nearly 7 cents above the level where the last COT report posted the largest long since February 2021, the market is obviously seriously overextended technically.
GOLD & SILVER
With relative calm in the Middle East apparently poised to end soon with an Israeli attack of the southern Gaza city of Rafah, it is not surprising to see gold and silver leap higher to start the new week. While overnight news coverage of the markets suggests gold is rising off US rate cut hopes for later this year, we suspect rate cut hopes are a minimal portion of the fuel for this morning’s gains. Classic demand signals were present overnight with the Perth mint April gold sales doubled from March sales while silver sales declined to their lowest level since December. Unfortunately for the bull camp, strong Perth mint gold sales were offset by an outflow from gold ETF holdings of 110,591 ounces on Friday and a total outflow last week of 409,098 ounces. Another flight to quality injection in today’s trade came from Russia where Putin ordered the Russian military to practice tactical nuclear weapon scenarios. However, the action in gold last week should discourage the bull camp as the trade was presented with favorable global gold demand readings from the World Gold Council and prices did not initially benefit. With June gold into the close Friday trading $32 above the level where the most recent COT report was measured, the net spec and fund in gold remains burdensome and near the highest levels in two years.
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