Copper Prices Spike Higher

COPPER

Apparently, the latest Chinese stimulus efforts have touched a nerve in the copper market with prices spiking higher and reaching the highest level since August 10th. In addition to 5 large Chinese banks reducing lending rates, the Chinese central bank has allowed Chinese foreign exchange banks to reduce the amount of required reserves which should increase liquidity and allow those banks to benefit financially. Unfortunately for the bull camp both LME and Shanghai copper warehouse stocks increased overnight with LME copper warehouse stocks building for 6 straight sessions and increasing in 32 out of the last 35 sessions. However, the focus of the copper trade today is obviously on demand as prices have basically ignored headlines from Chile where the government has announced their intention to boost exploration for copper by speeding up the authorization of mining permits. On the other hand, it is possible the trade is seeing a wave of speculative buying from news that a top European copper producer has suffered losses in the hundreds of millions of euros from what appears to be a scam. While yesterday’s Chinese manufacturing and nonmanufacturing data was offsetting, the slight gain in manufacturing PMI should have favored the bull camp. However, LME copper warehouse stocks continue to rise at a noticeable pace, while Chile announced its July year-over-year copper production increased by nearly 1%.

GOLD / SILVER

At least in the early Friday action, outside market forces are negative for gold and silver. However, the magnitude of strength in the dollar was limited despite an early rise above yesterday’s high. Fortunately for the bull camp, gold ETF holdings saw another inflow yesterday of 31,603 ounces, while silver ETF holdings saw another large outflow of 3.2 million ounces. Gold ETF holdings year-to-date are down 4.2% while silver ETF holdings year-to-date are down 4.4%. Despite the slight blip higher in US treasury implied yields this morning, the CME Fed watch tool continues to register a very high 89% probability the Fed will pause next month. Obviously, today’s monthly payroll report will have a massive impact on the Fed’s decision later this month and with expectations calling for a smaller jobs’ addition compared to last month the nonfarm payroll addition could be the smallest since the December 2021 report. We suspect gold and other physical commodities are drafting support/lift from interest rate cuts at 5 of China’s largest banks and from the Chinese central bank reduction on the amount of cash reserves required at Chinese foreign exchange banks. In today’s action, traders should expect volatility with the US nonfarm payroll report likely the most significant data point ahead of the Fed decision at midmonth. While the silver market has not seen distinctly positive physical/industrial demand news for quite some time, a Bloomberg article overnight predicts significant tightening in the silver market because of a surge in demand from the manufacture of solar products.

PLATINUM / PALLADIUM

With the platinum market this week posting a low to high rally of $51 and the sharp rally resulting in consistent liquidation of open interest, a critical top has probably been posted. Certainly, there is hope that China will help facilitate car sales with favorable credit and/or the creation of jobs, but it is possible that platinum has prematurely factored in benefits from China’s stimulus actions. On the other hand, China overnight saw 5 large banks cut interest rates and foreign exchange banks have been allowed to reduce reserves required to operate. However, the supply side of the equation is bearish as Impala Platinum raised their output forecast but the gains in output could be mostly attributable to the purchase of additional mining facilities.

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