Written Commentary
COPPER
While the surge in gold has been very impressive, the copper market has also exploded for a massive gain of 16% since the February low. Obviously, the macroeconomic view toward China has shifted into positive territory again bolstered by two positive PMI readings. Adding into the bullish argument in copper is the unilateral decision by Chinese copper smelters to reduce capacity which means the world’s largest refined copper producer will be forced to “buy” finished copper products and make less finished copper products. While the copper market has not been particularly interested in US scheduled data, yesterday’s US economic data was disappointing from the ISM service sector headline reading, minimally positive from the ISM employment reading and definitively supportive from the stronger-than-expected ADP employment result and perhaps most importantly from the significant decline in ISM services prices paid. However, the bullish bias in copper remains broad-based with LME copper jumping by 3% overnight and Shanghai copper futures prices reaching the highest level since February 2022.
GOLD & SILVER
With a downside extension in the dollar, another new all-time high in June gold was to be expected this morning. Apparently, the latest surge was ignited by a bullish interpretation of Fed commentary yesterday reiterating the likely prospects of rate cuts “this year”. Surprisingly, the Fed’s vagueness on timing for a cut and even less guidance on the number of potential cuts has not deterred gold buyers or dollar sellers. Seeing gold ETF holdings rise by 78,610 ounces yesterday and silver ETF holdings jumping by 2.8 million ounces, the record run in gold appears to have finally gotten the attention of small investors. With rumors that central banks are pitching US treasuries and raising gold holdings recently surfacing, news from the World Gold Council of ongoing central bank gold buying in February should embolden the bull case. Surprisingly, the Peoples Bank of China in February purchased 12 tons, with India and the National Bank of Kazakhstan each purchasing 6 tons. With the net purchase of gold by central banks in February and the Chinese central bank reportedly adding reserves for a 16th straight month, the gold market now has a bullish theme with a pedigree.
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