Bias in Copper Shifts Down

COPPER

The bias in copper has shifted down despite a risk on environment in global equity markets overnight. In addition to a slight softening of US vehicle sales, copper this week has been presented with discouraging manufacturing data from China, the US, and the euro zone. Furthermore, daily LME copper stocks increased by 2,250 tons this morning and there are forecasts for production in Peru to stabilize this year after last year’s turmoil. While it was not surprising to see copper trade lower yesterday, it was surprising to see copper avoid significant declines. In fact, the trade has already been presented with discouraging industrial/manufacturing activity readings and more soft data is expected today from US factory orders which are expected to decline by a significant 0.5%. The trade also expects to see a significant decline in US Job Openings and the market will face what is expected to be another hawkish US Federal Reserve member speech this morning. It should also be noted that copper stocks in all major Chinese markets posted an increase of 9,600 tonnes last week, which partially discounts the bullish impact from the weekly decline in Shanghai copper warehouse stocks last Friday. While copper might see some support from risk-on sentiment in equities and further strength in crude oil prices, we suspect the copper trade will maintain a bearish tilt in the coming sessions.

GOLD / SILVER

We give an edge to the bear camp in gold today as a suggestion from the Fed’s Cook yesterday that disinflation may already be underway clearly moderates a portion of flight to quality buying on the inflation theme and undermines gold and silver because of their physical commodity market standing. Furthermore, the Fed’s Cook also indicated more rate hikes were needed with the central bank concentrating on battling inflation regardless of the standing of the US economy! Yet another negative for gold and silver came from Fed views that credit conditions are expected to tighten which is like the Fed raising rates. If data released early this week is any indication of data scheduled for release later this week, the markets are likely to be presented with additional slowing fears and more signs of softening inflation. While we think the dollar action will be secondary to the ebb and flow of gold prices, a slide in the dollar could cushion gold against what feels like a retracement. Unfortunately for the bull camp, yesterday’s explosive trading range produced a low volume trading day with a decline in open interest. Therefore, the gold charts leave the market vulnerable especially if the markets begin to broadly embrace risk on.

PALLADIUM / PLATINUM

While the platinum market did not surge higher like gold in recent sessions, the market did forge a low to high 3-day rally of $50 and despite positive global equity market action overnight, the prospects for physical commodity demand appear to be deteriorating with predictions of slowing and disinflation from the Fed. Even though US vehicle sales released yesterday showed a very minimal decline, the slide in sales in the face of slightly lower loan rates is discouraging the bull camp in the PGM markets. With the platinum market yesterday posting a very narrow $4 trading range on the lowest trading volume since early February, the market does not appear to be poised to follow gold higher or more importantly continue higher on its own accord. In fact, signs of softening industrial/manufacturing activity in China and the US should provide the bear camp with fresh confidence. The bear camp should also benefit from a 2023 platinum price forecast reduction from Jeffries and from the fact that the most recent COT positioning report showed platinum holding a net spec and fund long of 15,171 contracts. As opposed to the platinum market, the palladium market holds a large net spec and fund short positioning (near record levels) and that should help cushion the market in the event of a broad-based physical commodity market washout.

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