Written Commentary
COPPER
With lower action today, we are more convinced that the copper market posted a classic “buy the rumor, sell the fact” reaction to the Chinese Covid news over the past 2 weeks. In fact, copper prices are struggling to remain in positive territory this morning despite the potential for additional Chinese Covid rule relaxation measures scheduled for release tomorrow. Furthermore, last week copper prices rallied aggressively in the face of soft Chinese scheduled data, risk off sentiment (early last week) and in the face of growing European recession fear. However, Shanghai copper warehouse stocks remain very low, and traders should not discount the potential for major Chinese stimulus if Chinese leaders feel their economy needs assistance in the form of infrastructure spending. On the other hand, the most recent economic data from China (Caixin Services PMI) came in much weaker than expected and there are suspicions that China will move slower on opening than current market expectations.
GOLD / SILVER
With the dollar trading near 3-day highs, the gains in gold and silver prices early today are vulnerable to reversal. However, it is possible the gold and silver markets will benefit from reports that China will release additional Covid restriction relaxation rules on Wednesday. While we think the media descriptions of recent US data as “strong” overstate the performance of the US economy, that bias is fostering reevaluation of the magnitude of the US rate hike next week. In offsetting stories gold ETF holdings yesterday saw a noted of 442,002-ounce outflow while Bloomberg posted a story that India has seen its first gold ATM installed. According to some economists’ gold ATMs could rekindle Indian gold demand especially among the younger generation. It goes without saying that the November and December rally in gold and silver was built on unfolding weakness in the dollar and that focus should remain in place. In fact, a Bloomberg article yesterday suggested that classic supply and demand news in gold has become less important to the gold trade, and we agree with that argument. However, seeing record Central Bank gold buying this year should lend some classic support to gold but that is offset by falling investment (ETF) demand and by suspect jewelry sales projections for 2023. Unfortunately for the bull camp, yesterday silver ETFs also saw a large 1.7 million ounces outflow and holdings remained 14% lower year-to-date. Looking ahead, given a very active economic report slate, we suspect the dollar will benefit and gold and silver will falter further.
PALLADIUM / PLATINUM
After showing initial strength yesterday, palladium prices fell back from their highs and forged a 3-day low. In retrospect, the PGM markets have been limited by a 997,000 decline in annualized US vehicle sales from October to November. However, October vehicle sales were at a 16-month high, while the November reading was the 4th highest reading this year so far. In a surprise and possible one-off development palladium ETF holdings yesterday jumped by a smart 4,598 ounces but remain 18% lower year-to-date. With a 4-day low in platinum yesterday combined with a recent net spec and fund long position of 28,443 contracts the technical path of least resistance is pointing down in platinum. In fact, with platinum forging a rally of $58 since the COT report was measured, the net spec and fund long in platinum might have reached the highest level since late February.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
