Written Commentary
PRECIOUS METALS
Gold: December gold contracts hit a three-month high, building on gains from last week as investor unease over the Treasury Department’s announcement to double the buyback operations has stoked another round of the debasement trade. The move by the Treasury is bearish for the dollar as if the market cannot naturally lower bond prices and price risk premium, traders will adjust by depreciating in the dollar. Additionally, the administration is unlikely to address the underlying problem, being the large deficit and rising debt. Persistent inflationary worries have also compounded these dynamics as traders have begun to look to other stores of value amid a rotation away from securitized assets. For gold to continue its advance, the dollar will need to remain under pressure without a meaningful rise in Treasury yields. Warsh’s speech at Jackson Hole symposium this week will see traders look for guidance over the recent climb in yields and for reassurance of Fed policy from the Trump administration. Failure to address near-term issues without any material plans from the Fed is likely to add to bond market unease. Markets are pricing a 40% chance of a hike next month and see 27 bps of total tightening by year end. With no end to the US-Iran impasse in sight, oil supply from the Middle East will remain disrupted, keeping inflationary risks skewed upward. The risk backdrop is little changed with oil and yields still elevated and a US-Iran deal unlikely in the near term, keeping risk premium and inflationary worries elevated.
Silver: September contracts are down 0.58% to $69.15.
BASE METALS
Copper: Copper prices on the LME traded 0.2% higher at $14,240, while COMEX prices rose 0.67% to $6.63 as cancelled warrants on the LME system rose. Cancellations were concentrated in warehouses in the US and Asia, free-trade zones, where the metal is likely to be sent to COMEX warehouses inside the US. Shipments to the US continue as anticipations over US tariffs on copper remain. COMEX warehouse stocks sit at over 673,000 tons. The premium of the of the cash contract over the three-month forward has dropped substantially from last Monday’s $436 as more copper has become available for immediate delivery, though is expected to rise against the backdrop of renewed cancellations.
Zinc: Zinc rose 0.4% to $3,838.
Aluminum: Aluminum eased 0.1% to $3,233.
Tin: Tin added 0.2% to $56,000.
Lead: Lead gained 0.4% to $1,906.
Nickel: Nickel firmed 0.1% to $17,080.
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