Written Commentary
PRECIOUS METALS
Gold: December gold contracts moved below the $4,400 level as the dollar maintained recent strength despite the drop in oil prices, likely suggesting that the Fed’s expected hiking cycle is playing a dominant role over a possible reopening of the Strait. A Reuters report overnight detailed that Iran could reopen the Strait of Hormuz within a week on the condition that the US reduces its military pressure and lifts its blockade. It was also reported that Iran’s President will not meet President Trump this week at the U.N. General Assembly. Oil prices have fallen for four-straight days, though lingering risks from Houthi rebels in Saudi Arabia could test that dynamic. Meanwhile, St. Louis Fed President Musalem said that the Fed will need to raise rates further to combat inflation resulting from strong demand as well as the commodity price shock, which has moved beyond oil. Musalem is not a voting member on the FOMC and did not hint at the Fed’s possible next steps. Persistent inflation and further policy tightening from the Fed present downside risks for gold, which could pull it closer to $4,000. The upside story would be a de-escalation event between the US and Iran that would ease inflationary risks, leading to lower yields and a softer dollar.
Silver: December contracts are down 0.64% to $65.40.
BASE METALS
Copper: Copper prices on the LME rose 0.7% to $14,758 as buyers in China continue to underpin prices among expectations of a wave of seasonal buying in the country. The demand from China is not limited to just exchange purchasing, as physical buying has moved the Yangshan copper premium, a gauge of Chinese demand for copper imports, up nearly 70% in September to $119 a ton, easing from Friday’s $124. On the SHFE, copper prices rose rose 1.2% to 111,320 yuan ($16,616). In part this is thanks to a tight scrap market domestically, which has the added effect of limiting smelting capacity in the country. This week’s Xi-Trump summit will be closely watched for any new trade dynamics that could benefit copper demand. Copper inventories in warehouses monitored by SHFE have fallen 70% since early June. Following the recent rally in copper across the globe, the greatest risk is a near-term pullback, especially if producers and traders in China begin to sell and collect profits.
Meanwhile, the premium of COMEX over LME widened, which could encourage further copper to leave LME warehouses toward the US. Last week the premium narrowed to a level which discouraged the shipment of LME copper to the US. Available copper stocks in LME-registered warehouses fell to 133,725 tons, after 9,600 tons of fresh cancellations in Asia. The premium of the cash contract over the three-month forward rose to $47 from a discount of $86 at the start of last week.
Zinc: Zinc rose 0.2% to $3,936.
Aluminum: Aluminum dipped 0.1% to $3,263.
Tin: Tin was little changed at $53,950.
Lead: Lead slipped 0.1% to $1,934.
Nickel: Nickel gained 1.3% to $16,530.
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