Downside Extension in Copper

COPPER

The downside extension this morning is not surprising considering the trades ongoing doubt on the capacity of the Chinese economy to regain its footing. Certainly, a reduction in home loan rates for first-term buyers in China is Supportive, but seeing Chinese trade data “contract by less than expected” is not an overly optimistic demand development. Furthermore, Chinese August copper imports declined by 5% over year-over-year figures but managed to increase on a month over month basis. It should also be noted that Chinese January through August copper imports fell by 10% which is a very significant negative demand as that shows weak demand over 8-months. However, negative Chinese trade headline news is offset by record Chinese copper ore and copper concentrate imports last month. Unfortunately for the bull camp daily LME copper warehouse stocks exploded with an inflow of 23,450 tons which ignites slumping global copper demand talk.

PLATINUM / PALLADIUM

If it rains it pours for the bull camp in platinum as the massive washout this week has likely prompted a very large single day decline in platinum ETF holdings. Given the aggressive downside washout in platinum prices in the wake of very bullish information from the World Platinum Investment Council yesterday, it is clear physical and speculative interest in the PGM markets is extremely thin. In fact, the World Platinum Investment Council projected a world deficit of more than 1 million ounces this year, and yet the October platinum contract yesterday fell by $18 an ounce. The large projected deficit would be a record largely attributable to a jump in demand and the inability of production growth to keep pace with long-term demand expansion. This year, the WPIC expects production to be 7% below the average for the last 10 years. However, according to the council China holds a significant amount of above ground supply which has probably discouraged some of their purchases on the open market. On the other hand, Chinese government mandates have fostered strategic supply building of key metals and platinum certainly fits within that category.

GOLD / SILVER

While bearish outside market forces are not presenting significant pressure on gold and silver prices, early on those forces remain and are likely to expand their impact directly ahead. Unfortunately for the camp in gold and silver, treasury prices are just above new lows for the move and the dollar index in the early trade matched the multi-month high posted yesterday in the overnight trade. Internal market forces like demand are mixed with gold and silver ETF holdings falling significantly and Chinese gold reserves at the end of August increasing from 68.6 million ounces to 69.6 million ounces. While the CME Fed funds watch tool continues to chop in both directions, the current measure pegs the prospect of a pause at 93% and while that should be supportive of precious metal prices, the trade has accepted the likelihood of a pause for weeks and the benefit for prices is factored in already. However, with jobs related data scheduled for release today and expected to increase from last week and following a significant contraction in US mortgage applications yesterday, gold and silver should see temporary support through the US scheduled data window. In short, we see gold and silver prices drifting lower and at times spiking lower in conjunction with fresh lows in treasury prices.

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