COPPER
With another week passing without the Chinese government taking extraordinary steps to cushion their economy, the downside failure last week in copper prices was fully justified. Fortunately, for the bull camp there is a slightly positive vibe flowing from global equities this morning but the Tuesday trade in copper will likely be heavily impacted by Chinese industrial production and retail sales figures for July. Official estimates call for a slight increase in Industrial production and a sizable increase in retail sales which could result in some shorts being caught in bad positions. Supply forces also remain bearish as LME copper warehouse stocks continue to march higher with that bearish supply element accentuated by recent news of a 22% increase in Peruvian copper production. It should be noted that the Peruvian government is aggressively pushing to expand copper production and exports as tax revenues from copper are extremely important to the country. It should also be noted that the net spec and fund short position in copper was relatively narrow last week, indicating the potential for further selling before the market becomes “mostly sold-out.”
GOLD / SILVER
With the gold market falling below its 200-day moving average last week, the dollar index rising above its 200-day moving average last Friday, and the dollar managing to strengthen despite mixed to slightly softer US data, outside market forces look to remain a direct pressure on gold and silver prices. Surprisingly, with growing signs of a loss of momentum in the US jobs market and signs of lingering inflation, the dollar remains in favor which in turn puts the gold and silver markets “out-of-favor.” Even though gold and silver ETF holdings saw pattern breaking inflows last Friday, gold holdings last week fell by 141,157 ounces while silver holdings declined by 2.7 million ounces highlighting ongoing investor skittishness toward the instruments. Yet another bearish influence on gold and silver is the downside extension Treasury bonds, with bond and note yields seemingly poised to breakout to the downside and return Treasury yields to 13-month highs. With silver ETF holdings generally declining over the last several weeks, many physical commodities off balance because of slowing in China, spillover selling from weakness in gold, rising US interest rates and a persistently strong dollar, the path of least resistance in silver is down.
PLATINUM / PALLADIUM
While the platinum market managed to bounce off last week’s spike low, fundamental arguments for the bull camp are absent. In fact, arguments for the bear camp are somewhat thin with residual fear of a Chinese recession, and declining auto catalyst production feared. However, the $900 level has proven to be credible support on many occasions over the last 12 months. We suspect platinum has reached a mostly liquidated status with last week’s spike down move but currently do not see fundamental reasoning to attempt to position for a bottom. Platinum ETF investors remain skittish with no trend in sentiment leaving traders confused despite holdings remaining up 4.9% year-to-date. Not surprisingly, the palladium market posted another record net spec and fund short position of 10,401 contracts which dramatically oversold considering that reading is roughly twice Friday’s trading volume.
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