Written Commentary
COPPER
While the 4 day high early today is justified by the latest Chinese attempt to support their economy, the Chinese central bank effort is judged to be inadequate leaving copper vulnerable to surrendering recent gains. Furthermore, LME copper warehouse stocks continued to rise overnight with a 3,125-ton inflow, and we suspect Chinese copper demand views are softening from significant declines in Chinese equity markets overnight. In our opinion, international copper demand signals are also deteriorating with surging global interest rates capable of discouraging home and vehicle purchases. With the situation in China failing to show improvement and the trade remaining highly skeptical of near-term Chinese government solutions capable of shifting economic views positive, the trend looks to remain down. Fortunately for the bear camp, the short covering bounce at the end of last week corrects an oversold condition and that action may help minimalize short side risks.
GOLD / SILVER
While a Chinese interest rate cut is a supportive development for gold it is not enough to offset an extension of bearish outside market influences flowing from a higher dollar and rising US interest rates. Despite short-term technical indicators like RSI and stochastics being oversold, the downtrend in gold looks entrenched. In a surprising conflict, the hawkish views of the US treasury trade and many traders that are now expecting higher for longer rates, the CME’s Fed Watch Tool at the end of last week pegged an 89% chance the Fed would pause. Another negative from the higher interest rate threat is this week’s Jackson Hole symposium which is expected to present hawkish rate projections. Therefore, treasuries are likely to grind even higher which in turn should expand the US interest rate differential edge over other actively competitive alternatives to the dollar, which ultimately should propagate the rally in the dollar. In conclusion, the upward track in the dollar looks to remain entrenched thereby leaving a bearish fundamental issue hanging on the back of gold, silver, and many physical commodities.
PLATINUM / PALLADIUM
While the Chinese attempted to support their economy with a rate cut, the trade was thoroughly disappointed in the magnitude of their effort leaving China as a negative to PGM markets and most physical commodity markets. Even though the platinum market finished last week with an impressive short covering rally, fundamentals from the demand side of the equation have not improved and supply-side developments have been unchanged recently. However, continued problems with the Chinese economy and recent outflows from platinum ETF instruments flat to lower trading volume leave the bear camp with more ammunition than the bull camp. At least to start today outside market forces clearly favor the bear camp in platinum. While the palladium market did not register another record spec short in the weekly COT report, the net short remains near record territory.
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.
