Copper Significantly Overbought

COPPER

Obviously, the copper market was significantly overbought with the $0.22 rally off the mid-February low especially with high anxiety toward the prospect of even more US rate hikes lingering in the marketplace. Fortunately for the bull Camp, Chinese home sales gained for 3rd straight week in a row and Chinese home prices increased for the first time this year. Therefore, copper sees the first notable and perhaps credible sign of positive Chinese economic news for several weeks. However, the market has already taken out yesterday’s low in the early action today and should be undermined because of gains in Shanghai copper warehouse stocks under warrants of 6196 metric tons which raises total inventories to 139,991 metric tons. While LME copper warehouse stocks remain at extremely low levels, the pattern of consistent declines has been periodically interrupted with daily inflows. As in many other physical commodities, the copper market will have another inflation report to deal with in the form of today’s US PCE. Even though expectations call for PCE to be unchanged or minimally lower from the prior month, in the current environment physical commodities like copper need signs that inflation is falling not simply holding steady.

GOLD / SILVER

In retrospect, the overall market reaction to yesterday’s release of the FOMC meeting minutes was surprisingly muted but perhaps justified by the lack of fresh and important news from that release. However, the markets will face another inflation reading/test today in the form of US PCE with expectations calling for the readings to be unchanged from last month or down slightly. Unfortunately for the bull camp the dollar has posted a 4-day high early and could with minimal gains reach the highest level since January 6th this morning. Therefore, even if gold and silver fail to react significantly to this morning’s inflation news, rate fears and dollar action should continue to dominate gold and to a lesser degree silver. Unfortunately for the bull camp the gold market is not taking direction from classic supply side developments with Gold Fields LTD overnight projecting 2023 gold production of only 2.25 million ounces to 2.30 million ounces which would be lower production than 2.4 million ounces in 2022. The company indicated a delay in its project in Chile is the cause of the reduction in 2023 output. Not all news from the Fed yesterday was negative as the Fed’s view that the US economic outlook was becoming “more balanced” should help support gold silver and other physical commodity markets. It is possible that gold and silver will track in tight ranges this morning until the US Fed’s favorite inflation measure “PCE” is released. Nonetheless, we leave the path of least resistance pointing down in gold and silver unless the initial positive equity market action yesterday following the Fed release is rekindled.

PALLADIUM / PLATINUM

While we are not as impressed with the strength in platinum prices Wednesday as we were with the action on Tuesday, seeing PGM prices stand up to outside market headwinds indicates some of the dominating bearish sentiment from the 2023 high washout has moderated. Even though we expect the platinum market to see significant outside market influences, the market should derive some support from UBS projections of an “undersupplied market” this year. UBS focused on improved auto sector demand and expected to see ongoing palladium to platinum substitution for auto catalyst. Platinum should also be supported following projections of a global platinum deficit this year of 304,000 ounces from another source yesterday. In addition to a fresh South African supply threat forecast yesterday, projected demand for platinum from the automotive industry will pick up this year with automotive demand representing 38% of total global platinum demand. Not surprisingly, the palladium market failed to rally yesterday and diverged negatively with the platinum market. However, the palladium market should have some investment demand and hope to offset the prospect of lost demand from the substitution of palladium with cheaper platinum in auto catalyst. As opposed to platinum, the palladium charts are clearly bearish with this week’s highs unable to push through long-term downtrend channel resistance lines.

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