Impressive Trade for Copper

COPPER

In a very impressive trade yesterday, copper forged another upside breakout and posted the highest trade since May 10th in the face of disappointing Chinese industrial production and retail sales earlier in the week. Clearly, the copper market definitively discounted disappointing “past” Chinese economic scheduled data and instead expect the Chinese economy to recover after a 2nd Chinese rate cut this week. The second cut in Chinese interest rates was for medium-term interest rate instruments. The bull camp should also be emboldened by clear signs of impending Chinese targeted support for several sectors of its economy. Underpinning the bull case is an extending pattern of material daily LME copper warehouse stocks outflows. However, a surprise increase in LME copper warehouse stocks overnight of 11,100 tons certainly dampens tightening supply arguments. On the other hand, Shanghai weekly copper warehouse stocks declined by 15,383 tons (-20.1%) and in the process posted a 15th week of declines out of the past 16 weeks.

GOLD / SILVER

In retrospect, the gold and silver markets saw the rug pulled out yesterday, experienced significant volatility and then aggressive rejections of the lows. While it is possible that disappointing Chinese economic data, the ECB rate hike and the Fed’s prediction of 2 more minor rate hikes this year combined sent longs to the sidelines, those fundamentals have been countervailed by a significant range down extension in the US dollar. Even disappointing Chinese economic data has been offset by a 2nd official Chinese interest rate reduction and by further signals this morning of impending support for specific struggling areas of the Chinese economy. Unfortunately for the bull camp, consistent gains in gold and silver only look to be the result of a single bullish theme (dollar weakness) and therefore gains could be hard-fought. Both gold and silver are facing demand headwinds from signs Investors continue to step away from gold and silver. Given a significant range down washout, the violation of several key chart support levels, and a $33 rally off the early lows, that clearly puts the bear camp back on its heels. However, we continue to see the bull case in gold heavily reliant on definitive dollar weakness.

PLATINUM / PALLADIUM

With a higher high and a 3 day high posted on top of yesterday’s $28 recovery off a new low for the move, the short-term technical picture for platinum has improved. However, without a rally above $1020.10 intermediate technical trend signals will remain in favor of the bear camp. In fact, investors continue to pull back from platinum ETFs with yesterday’s outflow of 34,007 ounces a single day 1% decline in total global holdings. In the end, the platinum market remains vulnerable to speculative liquidation given the size of the net spec and fund long in the last COT positioning report. From a fundamental demand perspective platinum deserved the washout early this week, as Chinese data was disappointing, the ECB hiked rates and the markets were temporarily tripped up by hawkish forward guidance from the US Fed. On the other hand, fear of higher rates will now proceed to the background ground and optimism from several Chinese moves to support their economy should incrementally improve platinum demand expectations. In the end, the short-term technical condition in platinum has improved, but the charts remain definitively bearish with the May and June downtrend steep and near-term support levels suspect. Despite reversal action of note on the palladium charts this week, the bull camp is lacking fundamental justification for a sustained recovery. Certainly, a 2nd Chinese interest rate cut this week is helpful for Chinese palladium demand hopes, but the rate cut action is countervailed by disappointing Chinese industrial production and retail sales reading.

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