Copper Near Value Zone Pricing?

COPPER

With the July copper contract managing to reject a new low for the week in the wake of disappointing Chinese manufacturing PMI readings overnight and in the face of a 10th straight daily increase in LME copper warehouse stocks, the copper market might be near value zone pricing. However, background chatter on fresh US bank sector problems and expanding global recession dialogue leaves the potential of a sub $3.80 trade in the offing. In fact, with aluminum, petroleum, natural gas, and copper prices falling sharply earlier this week, global slowing has become a front windshield theme again. As indicated in yesterday’s trade, seeing a significant decline in Chilean copper production of 4.7% in March has been fully discounted with the trade anticipating demand losses to be even larger. In the end, the Chinese Caixin manufacturing PMI data for April erodes expectations of improving Chinese copper demand in the near term and increases the importance of upcoming Chinese monthly commodity import readings.

GOLD / SILVER

In our opinion, the gold market has probably forged an intermediate top with a major blowoff range up reversal overnight. In other words, optimism about the potential for an end to the US rate hike cycle has been embraced and perhaps overdone. From a fundamental perspective, Indian gold prices posted a record high overnight and in the past Indians have been very price conscious which in turn could result in a near term demand void. However, the gold market should be supported by another inflow to gold ETF holdings of 24,688 ounces yesterday as that narrows the year-to-date decline in holdings to only 0.2%. Despite assurances from both the US Fed and the ECB they are nearing the end of their rate hike cycle, both central banks are definitive in their views that inflation remains too high. Unfortunately for the bull camp in silver yesterday ETF holdings saw an outflow of 808,656 ounces cutting the year-to-date gain in holdings to a minuscule 0.2%. Another slightly negative overnight development came from a softer than expected Chinese manufacturing PMI reading which dampens gold demand hopes from the world’s largest consumer. Unfortunately for the bull camp, the aggressive post Fed announcement rallies have dissipated quickly as if the markets fully priced moderating hawkish intentions from the Fed especially with the rallies early this week robust.

PLATINUM / PALLADIUM

While the July platinum contract overnight managed to respect the $1050 for the 2nd time this week, macroeconomic conditions are fostering ongoing demand concerns and some investors in platinum ETF holdings banked profits yesterday with an outflow of 1,346 ounces. However, going forward classic fundamental supply side support should add to the developing value zone at $1,050 as South African Impala Platinum reported of a 10% decline in the 3rd quarter platinum production from severe power disruptions. Without a large capital infusion from the South African government and or major structural changes to the electricity system it is likely that power disruptions will extend and worsen. With a pattern of lower highs and lower lows, the bias in the palladium market remains down. Surprisingly the trade is largely discounting palladium ETF growth this year of 8.6% with many traders indicating the rotation from industrial use of palladium to platinum is so far more than offsetting growing investment interest.

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