Copper Prices Track Downward

COPPER

Despite hope remaining eternal on additional Chinese stimulus efforts, copper prices have started the week out on a downward track. In retrospect, the inability to hold rallies on 2 occasions last week in the wake of yet another Chinese stimulus announcement is very disappointing to the bull camp. In fact, with the Chinese government offering specific assistance for the automobile and electronics industries, the inability to launch on the upside highlight a lack of interest by the bull camp. Unfortunately for the bull camp, recent exchange warehouse stock data has also favored the bear camp, but that was offset by very aggressive commentary from a major copper mining CEO who indicated copper prices will have to be significantly higher to expand production to meet the demand from the energy transition. While not a direct impact on copper, there are concerns that LME restrictions on Russian metals flowing through exchange warehousing and through the pricing mechanism could result in a severe aluminum squeeze which in turn could provide indirect support for copper prices.

GOLD / SILVER

We think the gold market is lucky to be holding above last week’s lows in the early trade today given a fresh higher high in the US dollar and in the face of almost certain rate hikes from the US and Europe later this week. Year-to-date both gold and silver ETF holdings are more than 2% lower! With the dollar rallying 160 points last week, the Thursday/Friday reversal in August gold of $40 was clearly deserved and likely sets the stage for more declines early this week. While treasury yields did not jump significantly, seeing treasury bonds forge a reversal of 2 full points from last week’s high certainly adds an element of potential selling pressure from the interest rate markets. However, with the looming likelihood of a US interest rate hike on Wednesday very high, the trade is obviously fully anticipating a move by the US Fed. Furthermore, Bank of Japan hints over the weekend suggested the bank might be open to “policy tweaks” which is a major shift in a multiyear aggressive accommodative positioning. The gold market is likely to see some volatility from US S&P global services PMI readings today, from the home price survey on Tuesday and to a lesser degree from Japanese and Australian price measures 12 hours ahead of the US Fed decision. While silver has managed to track better than gold in the face of risk on conditions, we suspect silver will fall in line with gold this week and slide on the charts in the wake of further gains in the US dollar.

PLATINUM / PALLADIUM

With platinum prices tracking lower this morning following reports of a 13% decline in Amplats platinum production and in the face of a bullish price outlook from UBS, it is clear the bull camp lacks motivation. In fact, UBS thinks platinum prices will grind above $1,000 in the coming 2 months from an expansion of the world platinum deficit because of sagging production and increased demand for hydrogen related PGM technology. Even though the platinum market rejected Friday’s new low for the move, the charts remain bearish and demand support from hope of a Chinese recovery remains elusive. In fact, with the latest Chinese stimulus targeted at the automobile and electronic sectors, followed up by a poor close last Thursday, speculative demand clearly remains a negative for the PGM markets. A part of the lack of support from the Chinese auto sector stimulus is the heavy push toward EV vehicles in China. Not surprisingly, the fundamental outlook for palladium remains nondescript with the market showing all the signs of remaining in a sideways chop.

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