Written Commentary
COPPER
The copper market lost momentum late last week after regaining the $3.90 level on a rally inspired by a significant improvement in sentiment toward the Chinese economy. While some factors behind the improved outlook for China are anecdotal (surging traffic numbers and surging air travel), they should help to countervail the very negative 109% explosion in Shanghai copper warehouse stocks at the end of last week. Unfortunately for the bull camp, we suspect the five-cent rally after the positioning report was measured likely liquidated nearly all the spec and fund shorts which could now set the stage for a temporary correction. In addition to softer Chinese equity market action early today, the copper market is likely to see some pressure from inflow to LME copper warehouse stocks of 4,925 tons especially with that increase in inventories following the massive weekly inflow to Shanghai copper warehouse stocks on Friday.
GOLD / SILVER
The action in gold this morning should be concerning to the bull camp as the dollar remains vulnerable on its charts with five straight days of lower highs. While not a major supportive development, treasury prices have added to last week’s late rebound early today. While some traders Friday bought gold off speculation of a slide in the dollar, we suspect there were pre-weekend flight to quality buyers betting on a Middle East event. However, Asian, and Chinese gold premiums continue to rise in what could be the first classic fundamental sign of an improvement in demand from the world’s largest consumer. At the end of last week, Chinese premiums reached as high as $55 per ounce over benchmark prices, significantly less than $104 per ounce the previous week. Therefore, it is possible that recovering physical demand has is returning among key consumers and potentially elsewhere if the US economy can pull the world through a soft landing. The gold trade this week will face a US treasury auction wave, US GDP, and Chinese manufacturing and on manufacturing PMI readings for February on Thursday. However, expectations for rate cuts around the world have declined with confidence toward US economy improving and the dollar likely to grind lower.
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