Written Commentary
PRECIOUS METALS
Gold: August gold were little changed overnight, though have continued to find support at the $4,000 level. A softer dollar and drop in US Treasury yields are supportive of the metal today, though the shaky Middle East backdrop is leading investors to remain cautious. Gold has struggled to find momentum amid the current macro backdrop, remaining in a corrective phase of what is a structural bull market. A weaker jobs report would allow the Fed to keep rates on hold this year, and likely prove supportive of gold. Thursday’s data showed modest real consumption growth with a very soft monthly inflation pulse. Despite the “benign” headline figures in Thursday’s inflation and GDP data, consumer spending rose 3.2% in Q2, up from 0.5% in Q1. Furthermore, sales to private domestic purchasers, a key measure of underlying demand rose 3.9% in Q2 buoyed by tax cuts and strong demand.
September’s meeting is now priced at a 69% chance of a hike compared to 30% odds following Warsh’s press conference. Regardless, the dollar has lost some support in interest-rate differentials, which have been a dominant driver of dollar direction in recent months. The market has now repriced a December rate hike, reflective of DXY’s move above the 100 level, which is the biggest indicator of market expectations that the Fed will hike rates this year. That dynamic will leave DXY vulnerable to the divergence in policy expectations between Fed and ECB.
Silver: September contracts are down 1.6% to $56.86.
BASE METALS
Copper: Copper prices on the LME rose on falling inventory levels, with benchmark LME copper up 0.6% to $13,875; COMEX prices are unchanged at $6.46. LME copper enters August with supportive fundamentals in the form of low warehouse inventory outside the US and strong demand for AI infrastructure buildout. However, that leaves the market susceptible to shifts in demand and performance in the tech sector. Available inventory in LME-registered warehouses dropped 50% in July and are currently at 101,650 tons, the lowest since mid-January.
The premium of cash LME copper continues to reflect tightness and solid demand in the market, at $40 a ton on Thursday it hit a seven-month high. This a sharp reversal of a $49 discount at the beginning of July. Demand in China remains modest, though factory data disappointed. The Yangshan copper premium continued to hold near $112 a ton, easing from last week’s $115. Factory activity in the country fell into contractionary territory, with the official manufacturing PMI falling to 49.2 from 50.3 amid shrinking new orders and weak domestic demand.
Zinc: Zinc was up 0.9% at $3,676.
Aluminum: Aluminum gained 0.8% to $3,210.
Tin: Tin added 0.4% to $55,500.
Lead: Lead slipped 0.3% to $1,871.
Nickel: Nickel fell 1.3% to $17,025.
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