Commodities And Yields are declining. This Is Why.

Summary

  • A stone thrown in a pond makes smaller and smaller waves.
  • Any system subjected to a shock responds irregularly until it reaches equilibrium.
  • Any economy subjected to a shock responds with oscillating random waves until it reaches its long-term growth rate.

A rise in the inventory to sales ratio means inventories are rising faster than demand. The business response is to reduce them. Production needs to be cut. Purchasing of raw materials must be reduced. Hours worked and labor is lowered. Borrowing is also curtailed since less capital is needed to finance operations.

The market response to these decisions is declining commodity prices and interest rates.

The opposite takes place when the inventory to sales ratio declines, reflecting the need to replenish inventories since sales are outstripping inventory growth. Production needs to be raised. Purchasing of raw materials must be increased. Hours worked and employment are expanded. Borrowing is also increased since more capital is needed to finance operations and capacity expansion.

The market response is higher rising commodity prices and interest rates.

Source: St. Louis Fed, The Peter Dag Portfolio Strategy and Management

The above chart shows the change in the inventory to sales ratio of three industrial segments: manufacturers, wholesalers, and total business.

The inventory to sales ratio (April data) has been sinking, reflecting demand outstripping supply by a wide margin. The last time it happened with similar violence was during the great recession of 2008-2009. Businesses will continue to respond by aggressively increasing production. This is the major business activity supporting the economy until inventories are growing at the same pace as sales.

The weakness in commodities and yields will provide an important clue whether inventories are finally outstripping demand and there is an unwanted inventory accumulation. It will take a few more months to find out. Commodity prices, however, being an important leading indicator, will provide important clues on the direction of the business cycle.

Source: St. Louis Fed, The Peter Dag Portfolio Strategy and Management

This chart shows the percent change on a month-to-month basis of sales, durable goods orders, and autos. The graphs show the growth patterns of these crucial sectors. The economy is oscillating like the waves generated by throwing a stone in the water.

The first big wave was caused by the lockdown of March 2020. The system boomed until May 2020, followed by a slowdown ending in Nov 2020. We experienced another wave which peaked in May 2021. The current decline shows the economy slowing down again. It will eventually reach its growth potential of 1.5%-2.0%.

The economy will have to continue to slow down to a growth rate lower than 2%. The reason is productivity growth is about 1.0% and population growth is 0.4%. The average growth rate of business activity is computed by adding these two numbers. No government program can stop this natural process.

This development is the main reason for the continued decline in commodities and bond yields.

Source: St. Louis Fed, The Peter Dag Portfolio Strategy and Management

This chart shows percent changes on a month-to-month basis of employment in manufacturing and construction. The employment situation in construction and manufacturing gives mixed pictures. Employment in construction has declined, confirming the weakness in housing and the decline in lumber prices. Manufacturing employment will stay firm thanks to the ongoing manufacturing effort to rebuild inventories.

Source: Cass Information Systems, Inc.
DiagramDescription automatically generated
Source: SockCharts.com, The Peter Dag Portfolio Strategy and Management

Shipping activity is still strong. This trend confirms the health of the manufacturing sector. The goods produced to replenish inventories must be shipped, thus causing the index to surge. It also explains the strength in crude oil prices – one of the few commodities resisting the decline.

The above chart shows the trending and gradually slower growth of the economy is confirmed by the broad decline in the major commodities – from soybeans to copper to lumber – except crude oil.

Key takeaways

  • The economy is trying to find its equilibrium growth rate which is close to 1.5%-2.0%, down from the current 10+%.
  • The various stimulus programs emanating from Washington generate random forces, further creating uncertainties and delaying the healing process of the economy caused by the lockdown of March 2020.
  • As the growth rates of the economy decline from the recent absurd 10+% to less than 2.0%, the markets will respond by placing continued downward pressure on commodities and yields.
  • Bonds (TLT) will keep appreciating, creating profit opportunities, and providing an attractive hedge to equity portfolios.

Stocks clamber up from 4-week lows, dollar eases from 10-week high

By Ritvik Carvalho

LONDON (Reuters) – Global stocks recovered some losses after hitting a four-week low on Monday as investors continued to digest last week’s surprise hawkish shift by the U.S. Federal Reserve, while the dollar stood just below a 10-week high.

Shares of banks, energy firms and other companies that tend to be sensitive to the economy’s fluctuations have fallen sharply since the Fed’s meeting on Wednesday, when the central bank caught investors off guard by anticipating two quarter-percentage-point rate increases in 2023.

Stocks in Asia took their cue from Wall Street’s falls on Friday but European shares bucked the trend, with the pan-European STOXX 600 index up 0.2% by afternoon trade in London. [.EU]

U.S. stock futures also moved firmly into positive territory, suggesting gains at the open on Wall Street later in the day. S&P 500 E-mini futures were up [.N]

“The interesting part about this correction is that it was lagged, so it took a while for the market to sort through the news,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

“The situation in reality is actually pretty good – the Fed is stabilizing inflation…Cyclical sectors may have overshot the market in the short term and so you may have a bit of pressure on the sector.”

Britain’s FTSE 100 was down 0.1%, France’s CAC 40 index gained 0.3% and Spain’s IBEX 35 fell 0.3%. Germany’s DAX was up nearly half a percent, while Italy’s FTSE MIB index rose 0.2%.

MSCI’s All Country World Index, which tracks shares across 49 countries, was down 0.2%, trimming some losses after hitting its lowest since May 24.

Benchmark 10-year U.S. Treasury yields recovered to 1.4414% after falling to their lowest since Feb. 24 at 1.3540%.

The yield curve – measured by the spread between two- and 30-year yields – earlier hit its flattest since late January, and as investors brought forward rate hike expectations while lowering the longer-term outlook for growth and inflation.

The U.S. dollar index hovered just below the 10-week high of 92.408 touched on Friday, following its biggest weekly advance in more than a year.

“Last week’s dollar rally is a combination of expectations and positioning (sold dollars), a concern that the Fed is ‘behind the curve’ (and therefore must do more and earlier than expected), and that stock markets have started to lose ground which makes the dollar strengthen as the most defensive currency,” Filip Carlsson, junior quantitative strategist at SEB, said in a morning note.

“We still see this as a correction and not the beginning of a new trend.”

St. Louis Fed President James Bullard further fuelled the sell-off on Friday by saying the shift toward faster policy tightening was a “natural” response to economic growth and particularly inflation moving quicker than anticipated as the country reopens from the coronavirus pandemic.

“The Fed’s pivot to begin the tightening discussion caught most by surprise, but markets began discounting this inevitable process months ago in our view,” Morgan Stanley analysts wrote in a report.

“It’s exactly what the mid-cycle transition is all about, and fits nicely with our narrative for choppier equity markets and a 10-20% correction for the broader indices this year.”

Earlier in Asia, Japan’s Nikkei led declines with a 3.6% drop and dipped below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4%. Chinese blue chips lost 0.7%.

Several Fed officials have speaking duties this week, including Chair Jerome Powell, who testifies before Congress on Tuesday. European Central Bank President Christine Lagarde speaks before the European Parliament on Monday.

The euro traded above its lowest against the dollar since April 6 at $1.1896 on Monday, dropping from as high as $1.21457 last Tuesday.

Sterling recovered some ground, to trade 0.6% higher at $1.3880 after sliding to its lowest since April 16 on Friday. [GBP/]

Commodity-linked currencies have also suffered, with the Australian dollar hovering above a six-month low at $0.7495.

A stronger greenback has pressured cryptocurrencies too, with bitcoin falling 10% to around $31,930, while smaller rival ether lost 15% to around $1,903.

In commodities, gold rebounded 1.1% to $1,783 an ounce on Monday, looking to snap a six-day losing streak, but remained near the lowest since early May.

Three-month copper on the London Metal Exchange fell to its lowest since April 15, following an 8.6% drop last week, the biggest weekly fall since March 2020.

Crude oil rose for a second day, underpinned by strong demand during the summer driving season and a pause in talks to revive the Iran nuclear deal that could indicate a delay in resumption of supplies from the OPEC producer.

Brent crude futures rose 0.1% to $73.56 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 0.1% to $71.74 a barrel.

(Reporting by Ritvik Carvalho; Additional reporting by Kevin Buckland in Tokyo; Editing by Catherine Evans and Peter Graff)

Is This The Ultimate Time To ‘Buy The Dip’ In Silver?

Federal Reserve Chair Jerome Powell also very clearly stated that their forecast should be taken with “a significant grain of salt” during his press conference.

Basically, the markets have been distracted by the narrative of higher inflation and higher interest rates, but they seem to have completely ignored the fact that any potential hikes are at least two years away. A lot can happen in two years!

If you look at the bigger picture, fundamentally, nothing has really changed. The Fed has reiterated that it will keep its benchmark interest rate near zero until 2023. It will continue with its massive quantitative easing program, while allowing inflation to run hotter than usual, for some time yet.

And let’s not forget the whole ‘Infrastructure spending boom and Green Energy Revolution’, which is currently taking shape across the global economy.

That still presents a significant window of opportunity for Silver traders, over the next two years at least.

Silver is not only an excellent inflation hedge, but it’s also a key component in everything from electric vehicles, renewable energy to 5G technology. Based on our proprietary research, photovoltaic demand for silver could exceed 3000 tonnes in 2021, while the 5G rollout – which is only just beginning – will be a major driver of demand for years to come.

Goldman Sachs see silver prices rising to $33 an ounce in H2 2021, boosted both investment and industrial demand for the precious metal – and our research suggests similar.

In my opinion, Silver is still definitely the best trade right now and any substantial pullbacks should be viewed as buying opportunities.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

Largest One-Day Drop This Year, Where Could Gold Trade to From Here?

Currently, gold futures basis, the most active August contract, is trading at $1770.90, a net decline of $90.50 or 4.85%.

This follows yesterday’s $43.80 decline, which occurred after the FOMC meeting had concluded, the Fed statement was released, and Chairman Jerome Powell held his press conference. There were two primary changes to the Federal Reserve’s mandate in regards to their current monetary policy. First, the “dot plot” revealed that voting members felt it was prudent to forecast two interest rate hikes in 2023 rather than one. But it was also that they began to “talk about talking about” tapering.

Yesterday’s substantial decline in gold prices was not a “one and done of event”. This major selloff was in response to the FOMC and Chairman Powell’s statements. The Federal Reserve left interest rates near zero and is forecasting to keep the current Fed’s funds rate until at least the end of 2022. They also signaled a possible timeline to begin tapering which is now believed to be as early as March of next year.

USDX chart 0

Concurrently the last two days resulted in a strongly fueled rally in the U.S. dollar. Considering that the dollar opened at 90.15 yesterday and closed at 91.92 today, gaining almost 2% (1.963%), today’s move accounts for almost the total year-to-date gains of the dollar index, which is 2.2%.

Dollar strength was certainly a contributing factor to gold’s sharp selloff over the last two days. Still, gold’s drop of almost 5% today demonstrates that selling pressure accounted for the vast majority of gold’s two-day price decline from $1860 to $1774.

chart 1

So where could gold trade from here? On a technical basis, the lows achieved today at $1767.30 came right to the 61.8% Fibonacci retracement of the rally, which began in April at $1680 up to the highs of May at $1918. If gold is to find support at this level, it will likely trade sideways at best. However, the next retracement level, the 78% Fibonacci retracement level occurs at $1730, which is also a likely point where gold could find support.

chart 2 long data set

Using a larger data set to create a Fibonacci retracement from the lows of March 2020 when gold was trading at $1450 and concluding at the record high of $2088, gold futures closed very near the 50% retracement of $1768.70. Below that price point is the 38.2% Fibonacci retracement at $1693.

Gold as a haven asset has lost some luster and could trade to the price points mentioned above. However, the industrial metals also sold off strongly over the last two days of trading. As a response to the Fed’s statement, copper might become oversold.

A time to look at copper, not yet, but how it differs from the haven group

While copper prices have also dropped sharply mostly as a direct result of efforts by China to dampen the current rally in commodities. In response, they have released copper from their state stockpiles after copper hit a 13 year high. According to Dow Jones Newswires, “As the world’s biggest buyer of a range of industrial commodities, China is using its market heft to try to quell the sharp rise in global metal prices over the past 12 months, including a 67% surge in copper, a bellwether for macroeconomic health. Economic stimulus measures and a broad resumption of global economic activity from pandemic lows have spurred a spree of buying in China and elsewhere.”

However, demand for copper as economies worldwide recover from the global recession will continue, and the shrinking supply will at some point pressure copper prices to move higher.

chart 3 copper june 17

Simply put copper demand will continue to grow and the supply to meet the demand will come slowly at best. According to Barron’s.com, “Catching up with copper demand, however, will prove to be a challenge. It takes roughly 10 years to build a new copper mine and years just to expand an existing one, so even if copper were at a whopping $10 a pound, a “meaningful supply response would not be possible in the near term,” Fine says. If copper demand persists or accelerates, it is “already too late” for the mining industry to meet that level of demand, he adds. A “meaningful shortfall” is assured unless demand collapses.”

The fundamentals will, at some point pressure copper back into a strong rally.

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

 

All Eyes Turn To Fed As Inflation Runs Hot – What’s Next?

Last week, the Consumer Price Index, jumped a sizzling 5% in May from a year earlier – to its highest level since 2008. Meanwhile, core CPI rose 3.8% year over year, which is its sharpest increase since 1992.

The inflation reading represented the biggest CPI gain since the 5.3% increase in August 2008, just before the global financial crisis sent the U.S. spiralling into the worst recession since the Great Depression – and Oil prices skyrocketing to $150 a barrel.

The hot reading now positions, the Federal Reserve’s June meeting is the big event for markets in the week ahead.

So far this year, the Fed has remained amendment that inflation will run hotter than its traditional 2% goal for a longer period than estimated as the global economy reopens, but should be transitory. Focus now shifted to the Fed’s June 15-16 meeting for further clarity on policymakers’ view on rising inflation and monetary policy going forward.

One of the key indicators of rising inflation – is higher oil prices. On Monday, Oil prices rallied to a 32-month high – putting them firmly on course for their biggest quarterly advance since 2010.

Elsewhere, many other commodities ranging from Copper, Palladium, Iron Ore to Lumber prices surged past all-time record highs in recent weeks – And this could just be the beginning!

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

Gold: Do Not Underestimate My… Copper?

Do you know what the key commodity in today’s world is? Crude oil. It’s the most commonly used good on the planet. In terms of versatility and number of applications, silver is not far behind, but there is also one more market that definitely comes to one’s mind when one hears “world commodity” – copper. And for a good reason – while it doesn’t have as unique properties as silver or gold, copper is much cheaper and thus more widely available.

Consequently, what’s happening in copper prices might have quite profound effects on the rest of the world, including the precious metals market. And the thing is: something very important happened to the price of copper recently.

The Importance of the Brown Metal

Namely, copper has just invalidated its breakout to new highs, which means that – just like in the case of gold in August 2020 – it wasn’t strong enough to soar higher. Well, it’s not to say that copper is weak, as it has more than doubled its price since the 2020 lows. However, it does mean that it’s likely time for a bigger corrective downswing, especially given that we haven’t seen one in many months. For instance, when gold invalidated its breakout above the 2011 high despite very bullish fundamentals, it meant that forecasting gold at lower levels was very much justified.

Likewise, when copper failed to hold its breakout above the 2008 high back in 2011, it was followed by a multi-year decline. Will the same happen this time? I wouldn’t bet on that given the amount of money being pumped into the system, but even if this is not the case, copper is likely to suffer a significant drawdown on a temporary basis. No market can move up or down in a straight line, and neither copper nor gold nor silver are exceptions to this rule.

Ok, but why is it important for the precious metals investors?

Because of two things:

  1. Both markets tend to move in a big way at similar times. The more local moves can vary, but the really big price moves are usually aligned. For example, the 2008 – 2011 rally and the fact that they both bottomed in late-2015 / early-2016.
  2. The copper price is quite closely related to the general stock market and the former’s inability to hold above its previous highs seems to be an indication of a change in the trend in the general stock market as well.

As I wrote before, the general stock market’s decline is not required for the precious metals sector to decline, but it would likely exacerbate the decline, just like it did in 2008 – especially in the case of silver and mining stocks.

And speaking of stocks, let’s check what the S&P 500 is doing.

The markets are self-similar (which is another way of saying that they have a fractal nature), which generally means that while the history tends to rhyme, it also tends to rhyme in similar shapes of alike or various sizes.

For example, the rally from 2018–2020 seems very similar to the rally from 2020 to the present. Both rallies started after a sharp decline, and the first notable correction took the form of back-and-forth trading around the previous high. I marked those situations with big rectangles.

Then the rally continued with relatively small week-to-week volatility. I created rising support lines based on the final low of the broad short-term consolidation and the first notable short-term bottom.

This line was broken, and some back-and-forth trading followed, but it was only about half of the previous correction in terms of price and time.

Then, we saw a sharp rally that then leveled off. And that was the top . The thing that confirmed the top was the visible breakdown below the rising support line right after stocks invalidated a tiny breakout to new highs. That’s what happened in February 2020, and that’s what seems to be taking place right now.

Back in 2020, the rally ended when the weekly RSI moved above 70 once again and when the S&P moved slightly to its new highs. While the history doesn’t have to repeat itself to the letter, if we see another small move higher – to new highs – that also takes the RSI above 70, please keep in mind that it’s not really a bullish development, but actually history forming its final rhyme. And the implications appear bearish for the precious metals sector, as it’s likely to be hit by the first wave of stock market declines – just like it was the case in 2008, 2020, and… 1929.

Moreover, mining stocks’ performance relative to hold has been heralding the declines across the precious metals market for some time now.

While gold is not doing much today, it’s important to note that yesterday it moved quite close to its previous highs (and visibly above $1,900) before declining. And how did gold miners react?

In short, they didn’t. And the GDX ETF has just closed at a new monthly low.

Even without considering the invalidation of the breakout to new highs, the sell signal from the RSI and stochastic indicators, and even without noticing that the GDX corrected to its 61.8% Fibonacci retracement without invalidating it, one can clearly see that gold stocks refused to follow gold higher during the most recent rebound. This is bearish – and quite profoundly so.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor.

By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Global Supply Chain Squeeze, Soaring Costs Threaten Solar Energy Boom

By Nichola Groom, Emily Chow and Muyu Xu

The situation suggests slower growth for the zero-emissions solar energy industry at a time world governments are trying to ramp up their efforts to fight climate change, and marks a reversal for the sector after a decade of falling costs.

It also reflects yet another industry shaken up by the supply chain bottlenecks that have developed in the recovery from the coronavirus health crisis, which has businesses from electronics manufacturers to home improvement retailers experiencing huge delays in shipping along with soaring costs.

“The narrative is shifting,” S&P Global Platts clean energy analyst Bruno Brunetti said in an interview, citing the costs inflation.

Graphic: Global solar capacity by region (MW): https://graphics.reuters.com/GLOBAL-SOLAR/jznvnwjgwpl/chart_eikon.jpg

Among the biggest headwinds for solar is a tripling in prices for steel, a key component in racks that hold solar panels, and polysilicon, the raw material used in panels.

Soaring shipping freight rates along with higher costs for fuel, copper and labor are also pinching project costs, company executives said.

Research firm IHS Markit warned last week that its global solar installation forecast for the year could slide to 156 gigawatts from a current projection of 181 GW if price pressures do not ease.

Wall Street has also punished the sector in recent weeks, sending the MAC Global Solar index down 24% this year after it tripled in 2020.

‘STILL WAITING’

Project developers in the United States, the No. 2 solar market behind China, told Reuters they are struggling to price projects for 2022 given the lack of clarity on how long price spikes will last.

Solar engineering, procurement and construction firm Swinerton Renewable Energy said some of its customers have also put “soft holds” on projects slated to start later this year while they wait to see if prices trend down.

Graphic: Container rates from China to major markets are all at or new all-time highs: https://fingfx.thomsonreuters.com/gfx/ce/gjnpwmxlwpw/Containerratesfromchina.png

“We’ve just become accustomed to such a low cost energy source,” said George Hershman, Swinerton’s president. “Like anything it’s hard to accept that you’re going to start to pay more.”

Contract prices for solar were already up 15% in the United States in the first quarter compared with last year due to higher interconnection and permitting costs, according to a quarterly index by LevelTen Energy.

U.S. panel manufacturer First Solar Inc told investors in April that congestion at American ports was holding up its module shipments from Asia.

And a U.S. maker of solar mounting systems, Array Technologies Inc, withdrew its forecast for the year last month due to steel and freight costs.

In Europe, some projects that do not have strict timelines for when they need to begin delivering power are being delayed, according to executives and analysts.

“The situation has not resolved itself because prices have stayed high, so those who have capacity to wait are still waiting,” said Jose Nunez, chief financial officer of Spanish solar tracker maker Soltec Power Holdings SA. Nunez said Soltec was seeing project delays in all of the markets it serves.

Supply constraints could put upward pressure on relatively stable European solar prices later this year as companies seek to preserve profit margins that are already razor thin, according to LevelTen.

In China, the world’s top solar product maker, producers are already raising prices to protect margins, leading to slower orders.

According to three solar panel makers in China polled by Reuters, prices for panels are up 20-40% in the past year, following the surge in costs for polysilicon, the raw material for solar cells and panels.

Graphic: China’s solar cell exports (in units): https://graphics.reuters.com/CHINA-SOLAR/EXPORTS/jbyprgqolve/chart_eikon.jpg

“We have to manufacture the product, but on the other hand, if the price is too high, the project developers want to wait,” Jack Xiao, marketing director at BeyondSun Holdings, a panel maker that exports 60% of its products, said.

A state-backed solar cell factory manager who asked not to be named told Reuters that output has dropped because customers are reluctant to fulfill orders at current prices.

China’s Canadian Solar Inc, a top panel producer, said last month that its product prices were up 10% in the first quarter from the previous three month period, an increase it plans to pass on to customers.

“We will continue to take price up, and we’re willing to give up some volume in order to protect margins,” Yan Zhuang, president of the company’s module making division, said on a conference call with investors last month.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Global solar capacity by region (MW) https://tmsnrt.rs/352HBe0

Container rates from China to major markets are all at or new all-time highs https://tmsnrt.rs/3vMpCE9

China’s solar cell exports (in units) https://tmsnrt.rs/2Rjh5cS

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

(Additional reporting by Isla Binnie in Madrid and Emily Chow in Shanghai; Editing by Richard Valdmanis and Marguerita Choy)

Is Copper the New Golden Child of the Metals Group?

Unquestionably gold continues to remain the primary precious metal that is a hedge against inflation. Gold has the same buying power as it has had for the last 100 years.

chart for kitco June 8

To elaborate, if you had a $20 gold coin or a $20 bill (redeemable in gold) in 1910, you could use either the gold coin or $20 bill to pay for a room at the Plaza Hotel in New York, by a new suit, and have a steak dinner. Today with the same $20 bill, you would be hard-pressed to buy just the steak dinner. However, a one-ounce gold coin is worth approximately $1900. With $1900, you could still buy a suit, stay at the Plaza for one night and have a steak dinner. In other words, the buying power of gold has not changed for the last hundred years; however, the dollar has dramatically devalued as inflation has ravaged the buying power of our fiat currency.

Because of that stability in buying power, gold will never lose its luster or allure as a safe-haven asset. It is for that reason that gold will always be a cornerstone asset in the safe-haven group.

However, as a purely speculative trade or investment you might want to look into copper futures. Copper has more than doubled in price, from $2.00 a pound in the middle of March 2020 and traded to a new record high on May 10 of
$4.87 per pound, resulting in a 143.5% increase in value.

More so, several analysts are predicting much higher pricing in copper this year and the first quarter of 2022. The commodity strategists at Bank of America forecast copper prices to run as high as $5.87 per pound by the end of the year. Recently Michael Widmer, Bank of America commodity strategist, said that inventories measured in tons are now at levels seen 15 years ago. He predicts that copper could spike to $13,000 per metric ton, which is roughly $5.89 per pound. He is also predicting that copper could hit $20,000 per metric ton by 2025. That would take copper pricing to just over $9 per pound.

“The world risks running out of copper” amid widening supply and demand deficits, according to Bank of America, and prices could hit $20,000 per metric ton by 2025.

“If our expectation of increased supply in secondary material, a non-transparent market, did not materialize, inventories could deplete within the next three years, giving rise to even more violent price swings that could take the red metal above $20,000/t ($9.07/lb).”

David Neuhauser, managing director of U.S. hedge fund Livermore Partners, said that “I think copper is the new oil and I think copper, for the next five to 10 years, is going to look tremendous with the potential for $20,000 per metric ton.”

While copper will never replace the safe-haven benefits of gold, and as such, gold should remain an essential and integral part of a diversified portfolio. At the same time, copper could be one of the more lucrative speculative investments over the next three years.

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

 

China’s Imports Grow at Fastest Pace in Decade as Materials Prices Surge

While a brisk recovery in developed markets has bolstered demand for Chinese products, a global semiconductor shortage, higher raw material and freight costs, logistics bottlenecks and a strengthening yuan have dimmed the outlook for the world’s largest exporting nation.

China’s exports in dollar terms grew 27.9% in May from a year earlier, slower than the 32.3% growth reported in April and missing analysts’ forecast of 32.1%.

“Exports surprised a bit on the downside, maybe due to the COVID cases in Guangdong province which slowed down the turnover in Shenzhen and Guangzhou ports,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, adding that turnover at ports in Guangdong will likely remain slow in June.

Major shipping companies warned clients of worsening congestion at Shenzhen’s Yantian port in Guangdong province after the discovery of several cases among port staff.

On the ground in Guangdong, factories have yet to report widespread capacity cuts over the outbreak but admitted efficiency issues as they tried to meet overseas demand.

Chen Linsheng, COO at Anlan, a Shenzhen-based manufacturer of skincare and beauty-care devices, told Reuters while there was no impact on production, staff are now subject to a series of COVID tests and not allowed back into the factory without a negative result.

“We are not allowed going out (of the city). We need to report in advance and cannot even go to Guangzhou or Foshan on our own,” said Chen, adding that a lot of meetings have moved back online.

Besides the impact of COVID cases in Guangdong, the global chip shortage has started to hit all of China’s export items related to semiconductors, said Iris Pang, Greater China chief economist at ING.

For example, auto processing products and parts, the biggest export item, fell 4% year-on-year, Pang added.

At the same time, the currency’s extended rally in recent weeks to near three-year highs against the dollar could further saddle U.S. consumers with higher prices.

PRICE-DRIVEN SURGE

Imports increased 51.1% year-on-year last month in dollar terms, the fastest growth since January 2011 but slower than the 51.5% rise tipped by the Reuters poll.

However, that figure–a gauge of import values, not volumes–was partly flattered by hot raw materials prices with demand for commodities such as coal, steel, iron ore and copper driven by easing pandemic lockdowns in many countries and ample global liquidity.

Julian Evans-Pritchard, senior China economist at Capital Economics, said while import prices increased at a rapid pace, import volumes probably edged down in May.

“Once again, supply constraints are partly to blame – inbound shipments of semiconductors continued to drop back,” he said. “So too did imports of industrial metals.”

Indeed, iron ore futures dipped more than 3% on Monday as the trade data cast a shadown over demand prospects.

China posted a $45.53 billion trade surplus for the month, wider than the $42.86 billion surplus in April but less than the $50.5 billion expected.

The Biden administration is conducting a review of U.S.-China trade policy, ahead of the expiry of the Trump-era “Phase 1” deal at the end of 2021, which called for China to increase purchases of U.S. agricultural goods, manufactured products.

Since President Joe Biden took office in January, China has increased engagement with U.S. trade and economic chiefs. China’s Vice Premier Liu He spoke with U.S. Treasury Secretary Janet Yellen last week, just days after talks with U.S. Trade chief Katherine Tai.

(Reporting by Liangping Gao, Stella Qiu and Ryan Woo; Editing by Sam Holmes)

Asia Shares Hesitate, China Imports Underpin Resources

By Wayne Cole

Data out of Beijing showed China’s imports grew at their fastest pace in 10 years as it sucked up resources, a boon for everything from copper to iron ore prices.

Rising costs and supply bottlenecks were a hurdle for exports, though, and Chinese blue chips eased 0.5%.

Taiwan stocks lost 0.2% as a spike in COVID-19 cases hit three tech companies in northern Taiwan, including chip packager King Yuan Electronics.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1% and risked a fourth straight session of losses. Japan’s Nikkei edged up 0.3% and touched its highest in almost a month.

Investors were wary on how shares of major tech firms would react to the G7’s agreement on a minimum global corporate tax rate of at least 15%, although getting the approval of the whole G20 could be a tall order.

So far, the reaction was muted with both Nasdaq and S&P 500 futures down 0.2%. EUROSTOXX 50 futures and FTSE futures eased 0.1%.

Also of interest will be the tussle over U.S. President Joe Biden’s proposed $1.7 trillion infrastructure plan with the White House rejecting the latest Republican offer.

While the 559,000 rise in May U.S. jobs missed forecasts it was still a relief after April’s shockingly weak report. The jobless rate at 5.8% showed there was a long way to go to reach the Federal Reserve’s goal of full employment.

“The data was perfect for a goldilocks type outlook for risk: not too hot to bring in fears of a faster Fed taper, and not too cold to worry about the outlook for the recovery,” said NatWest Markets strategist John Briggs.

“This caused a weaker USD, better stocks, reinforced the earlier bid in commodities, and boosted emerging markets.”

Attention will now turn to the U.S. consumer price report on Thursday where the risk is of another high number, though the Fed still argues the spike is transitory.

Briggs suspected Fed officials might open the door to talking about tapering at the June policy meeting, with the start coming in early 2022 and a rate hike not until 2024.

The European Central Bank holds its policy meeting on Thursday and is widely expected to maintain its stimulus measures with tapering a distant prospect.

Yields on U.S. 10-year notes were a fraction higher at 1.57%, after diving 7 basis points on Friday and back to the bottom of the trading range of the last three months.

That drop, combined with an improvement in risk appetite, put the dollar on the defensive. It was last at 90.173 against a basket of currencies, having slipped from a top of 90.629 on Friday.

The euro was holding at $1.2167, after bouncing from a three-week trough of $1.2102 on Friday, while the dollar was back at 109.45 yen from a peak of 110.33.

The pullback in the dollar helped gold steady at $1,885 an ounce, up from a low of $1,855 on Friday. [GOL/]

Oil prices ran into profit-taking after Brent topped $72 a barrel for the first time since 2019 last week as OPEC+ supply discipline and recovering demand countered concerns about a patchy global COVID-19 vaccination rollout. [O/R]

Brent slipped 29 cents to $71.60 a barrel, while U.S. crude eased 22 cents to $69.40.

(Editing by Shri Navaratnam and Richard Pullin)

China’s Imports Grow at Fastest Pace in a Decade

Exports in dollar terms grew 27.9% in May from a year earlier, slower than the 32.3% growth reported in April and missing analysts’ forecast of 32.1%.

Imports increased 51.1% year-on-year last month, picking up from a 43.1% rise in April but slower than the 51.5% rise tipped by the Reuters poll. It was the fastest import growth since January 2011.

China posted a trade surplus of $45.53 billion for the month, wider than the $42.86 billion surplus in April but less than the $50.5 billion expected by analysts.

A brisk recovery in developed market demand and disruptions caused by COVID-19 in other manufacturing nations have strengthened China’s exports, analysts said.

However, exporters are grappling with higher raw material and freight costs, logistics bottlenecks and a strengthening yuan, which diminishes trade competitiveness.

Prices for commodities such as coal, steel, iron ore and copper have surged this year, driven by easing pandemic lockdowns in many countries and ample global liquidity.

The currency extended its rally in recent weeks to near three-year highs against the dollar, while its strength has yet to dent China’s trade surplus, but could further saddle U.S. consumers with higher prices.

The Biden administration is conducting a review of U.S.-China trade policy, ahead of the expiry of their Phase 1 deal at the end of 2021, which called for China to increase purchases of U.S. agricultural goods, manufactured products.

Since President Joe Biden took office in January, China has increased engagement with U.S. trade and economic chiefs. China’s Vice Premier Liu He spoke with U.S. Treasury Secretary Janet Yellen last week, just days after talks with U.S. Trade chief Katherine Tai.

(Reporting by Liangping Gao, Stella Qiu and Ryan Woo; Editing by Sam Holmes)

Exclusive: Mexico Now Ready to Welcome Private Lithium Miners

By David Alire Garcia

Mexico, a major copper and silver producer, is home to large potential reserves of lithium, used in electric vehicle (EV) batteries. Most of it is in hard-to-tap clay deposits that are costly and technically difficult to mine.

After touting the possibility of a state-run lithium monopoly late last year, Sen. Alejandro Armenta, chairman of the upper chamber’s finance committee and a key ally of President Andres Manuel Lopez Obrador, said he will instead author a bill to promote a regulated marketplace in the nascent sector.

“We’re convinced that we need private investment and we’re allies of domestic investors and also foreign investors who respect us,” said Armenta, attributing his new posture to having studied regulatory frameworks for lithium in other countries.

Armenta said a market-friendly lithium bill will be introduced in September with the start of a new legislative session, following June 6 mid-term elections.

Mexico’s nationalistic president, who favors state-centric oil and power markets, said in March that his government was analyzing the possibility of taking a larger stake in lithium. He did not go into detail.

In recent weeks, a friendlier message to business has emerged from officials and candidates from the ruling National Regeneration Movement (MORENA) after Lopez Obrador’s clashes with business elites.

Economy Minister Tatiana Clouthier told local radio last month that the government was considering a public-private partnership to develop lithium. She suggested the state might have a 51% stake, a blueprint Armenta says he also now backs.

In the energy sector, private oil majors have mostly balked at joint ventures with national oil giant Pemex if the state-run company runs operations and it was unclear if lithium investors would react similarly.

 

TRAPPED IN CLAY

Surging demand for the ultra-light metal has fueled a global scramble to secure supplies, spurred by a planned wave of new electric autos by mid-decade from the likes of General Motors and Ford.

Developing Mexico’s lithium riches could help diversify global sources currently concentrated in a few countries, led by Australia and Chile.

Lithium producers have been seeking to aggressively ramp up output. Top producer Albemarle this year eyes doubling capacity, and No. 2 SQM expects to grow volumes of lithium carbonate by more than 70% in 2021.

Lithium is produced either from brine, commonly found in South America, or spodumene hard rock, usually in Australia, with proven extraction technologies largely limited to saline evaporation ponds and traditional ore processing.

Lithium-rich saline brines account for about three-quarters of global output, with rock mining making up the rest.

Mexican deposits found to date, however, are mostly trapped in clay soils.

That distribution is why Fernando Alanis, former chief executive of top silver miner Peñoles, is downbeat on Mexico’s potential to become a new lithium hot spot.

“Unfortunately, Mexico’s potential doesn’t really exist because there isn’t a commercial process to remove lithium from clays,” said Alanis, who in his role as a president of Mexico’s mining chamber is normally an industry cheerleader.

Several lithium clay projects are under development elsewhere including Lithium Americas Corp.’s Nevada project. The company has said it is confident it will be able to extract lithium from clay through a process that involves acid leaching

Top Mexico prospector Bacanora Lithium, which holds four concessions in the northern state of Sonora, has claimed to be closest to launching production. In 2018, it forecast output of 17,500 tonnes of lithium carbonate by 2020.

The target has been pushed back, and the firm’s current guidance is production will begin in 2023 and ramp up to 35,000 tonnes annually. If achieved, its one project would catapult Mexico to major producer status.

Global production stood at about 82,000 tonnes last year, according to the U.S. Geological Survey.

Bacanora’s delays have not slowed bets on the firm which saw its London-listed shares surge 30% in early May (May 6)after China’s Ganfeng Lithium, a major battery maker and Tesla supplier, offered to take over the company.

Bacanora declined comment on how it aims to process the clay-based lithium deposit in Sonora or its view of Armenta’s new legislative proposal.

(Reporting by David Alire Garcia; Editing by Amran Abocar and David Gregorio)

 

Peru’s Castillo Has Copper Tax Deals in His Sights; Chinese Firms at Risk

By Marco Aquino

Socialist candidate Pedro Castillo, the narrow favorite to win Sunday’s run-off vote, has proposed new royalties on mineral sales and has floated a plan to renegotiate long-standing tax deals struck under previous governments.

A teacher who was a shock winner in the first round vote, Castillo has accused mining firms of “plundering” Peru’s wealth. He has spoken about more than doubling the state’s share of mining profits to 70%, and using the funds for boosting healthcare and education and reducing income inequality.

A Reuters analysis of government data shows this would hit Chinese mining firms hardest, including MMG Ltd and Aluminum Corp of China (Chinalco), if Castillo were to win the election and follow through with his plan.

Chinese mining firms have become a key player in Peru’s mining industry. The Asian country is by far the largest buyer of Peruvian copper, used for everything from construction to the development of electric cars.

Peru has signed as many as 25 tax stability agreements since the 1990s, the data from the Mines and Energy Ministry shared with Reuters shows. The deals are meant to buffer investors from political or economic upheaval and experts say they set the stage for investment in some of the country’s largest mines.

Castillo’s tax plan could further unnerve markets and ratchet up uncertainty in the world’s top copper producing region. In neighboring Chile, the world’s No. 1 copper producer, the lower house of congress has already approved a plan to hike royalties on mining.

MMG, which operates the Las Bambas copper mine in Peru, signed a contract in 2011 that guarantees no change in taxation on its operations until the end of 2030, the ministry data show.

That deal encouraged the company to invest $10 billion at the sprawling mine that now churns out 350,000 tonnes of copper per year, according to company data.

Brokerage Jefferies said in a note MMG was highly exposed to Peru, given the importance of the Las Bambas mine.

“Peru tax/royalty increases could therefore be an issue, depending on the outcome of the upcoming presidential runoff,” it said.

Chinalco inked a tax stability deal through 2028 with Peru, the data showed. The company’s Toromocho mine produces 200,000 tonnes of copper concentrates per year.

Future projects may also be impacted.

Mining giant Anglo American and partner Mitsubishi signed a tax stability deal through 2037 for their soon-to-be completed $5.3 billion Quellaveco copper mine set to come online in 2022 with 330,000 tonnes of copper production.

The firms did not immediately comment for this story.

A win by Castillo, who is neck-in-neck in polls with business-friendly conservative Keiko Fujimori, would send political risk soaring in the region. Top copper producer Chile is also debating whether to hike royalties on miners and has begun a process to overhaul its constitution.

That uncertainty is supporting global copper prices, which have hit record highs as Chinese demand bounces back, while a rapid push towards electric vehicles should boost appetite for copper in years ahead.

Several other miners in Peru could face fresh talks with Peru’s government if Castillo wins on Sunday, the data shows.

The Constancia copper mine, operated by Canada’s Hudbay Minerals, holds a tax deal set to expire in 2031.

The Cerro Verde Mine, controlled by Freeport McMoRan, and Glencore’s Minera Antapaccay hold similar deals through the end of 2028.

(Reporting by Marco Aquino; Writing by Dave Sherwood; Editing by Adam Jourdan and David Gregorio)

 

Miners, Oil Majors Boost FTSE 100 Higher Ahead of Factory Activity Data

By Devik Jain

The blue-chip index climbed 0.7%, with base metal miners gaining 3.1% as they tracked higher copper and iron ore prices. [O/R]

Oil majors BP and Royal Dutch Shell added more than 1.2% each after Brent crude topped $70-mark on favourable demand outlook. [O/R]

The domestically focused mid-cap FTSE 250 index advanced 0.6%.

“A too rapid rise in oil prices would add on top of the worrying inflationary pressures and jeopardise the economic recovery,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The FTSE 100 is well positioned to benefit from firm oil prices and global reflation theme. It should surf on business reopening, rising inflation, prospects of tighter monetary policies, higher rates, and tapering.”

Mortgage lender Nationwide said British house prices jumped by an annual 10.9%, the most in nearly seven years, and they look set to accelerate further as people seek new homes after the COVID-19 pandemic.

The wider homebuilders index rose 1.7%.

But Deputy Governor Dave Ramsden has said that the Bank of England is carefully monitoring Britain’s booming housing market as it weighs risks of a broader pick-up in inflation.

The FTSE 100 index has traded in a tight range since April as concerns grew that central banks might pare their support early as economies reopen and inflation climbs.

Among other stocks, Wickes Group added 4.1% after the do-it-yourself retailer said its full-year profit would be in the upper half of analyst expectations after sales surged in April.

M&C Saatchi jumped 9.4% after the advertising agency forecast upbeat annual results on new robust campaigns.

Travel food group SSP Group rose 3.3% after Peel Hunt upgraded the stock to “add” on potential growth from European air market opening.

(Reporting by Devik Jain in Bengaluru; editing by Uttaresh.V)

Copper and Grains Led Fund Reduction in Commodities

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, and financials up until last Tuesday, May 25. A week where a steady dollar near a four-month low, and lower bond yields, led by deduced inflation expectations helped send volatility down and stock markets higher. The reporting week also caught the backend of the recent correction in commodities, primarily due weaker industrial metals on Chinese intervention fears and a sharp correction in grains.

Commodities

The Bloomberg Commodity index dropped 1.9% during the reporting week to last Tuesday, with heavy losses in industrial metals (-4.2%) and grains (-5.2%) offsetting continued gains in precious metals and livestock. In response to these developments, hedge funds cut bullish bets across 24 futures contracts by 6% to 2,286k lots, a six-week low. With the exception of gold and WTI crude oil selling was broad with the biggest reductions seen in natural gas, Brent crude oil, HG copper, soybeans and corn.

Energy

Speculators bought WTI crude oil (+18k lots) and sold Brent (-27.5) thereby leaving the combined net down 9.5k lots on the week at 624k lots, the lowest since January. The increase in WTI bets was driven by a rising US fuel demand ahead of the Memorial Day weekend that kicks of the country’s summer driving season, the lowest gasoline stockpiles in almost three decades together with crude stockpiles at Cushing, the WTI delivery hub, some 17% below the five-year average. Brent, the global benchmark, meanwhile saw net selling due to the risk of rising Iranian production together with virus outbreaks in Asia curbing demand.

Latest

Crude oil futures led by WTI (OILUSJUL21) remain supported as the U.S. summer driving season begin, while Brent (OILUKAUG21) continues to struggle breaking above $70 ahead of another round of Iran nuclear negotiations and Tuesday’s OPEC+ meeting where the group is expected to confirm an already agreed 0.8 million barrels per day increase for July. Until the market receives more clarity about the outcome of these, the upside potential beyond the March high at $71.40 seems limited.

Agriculture

The grains sector suffered another week of big price corrections and reductions in bullish bets. Led by soybeans, corn and to a lesser extent wheat, the combined net-long dropped 10% to a seven-month low at 412k lots, with the CBOT wheat position once again returning to almost flat.

Metals

Gold buying extended into a fourth week with the net long rising by 20k lots to a four-month high at 126.9k. It is worth noting that most of last weeks change was driven by a 27% reduction in the gross short position to the lowest since last July. Another sign that long term trend systems, the largest position holders in the trend system universe, continue to scale back short positions, thereby providing a constant bid in the market. Especially after the price broke the downtrend from the August high and after the price recently recovered back above its 200-day moving average.

Bullish HG Copper bets meanwhile slumped 35% to 33.9k lots, the smallest bet on rising prices since last July. The main culprit behind the reduction and copper’s recent 9% correction being China’s attempt to curb commodity prices and hoarding in the domestic market. An attempt both Goldman Sachs and Citigroup expect will fail due to the speed of the rebound in demand in advanced economies, particularly the U.S.

The current gold rally has left both platinum and silver trailing, and during the week both metals saw net selling, most noticeable being the 17% reduction in the platinum net long to a 5-1/2 month low at 14.6k.

Latest

Gold (XAUUSD) is heading for its biggest monthly gain since July as inflation remains the key focus, while Bitcoin at the same time is heading for its worst month since 2011. The recovery in ETF holdings backed by bullion and fund positions in futures remain subdued, a sign that many investors remain unconvinced about the short to medium term direction.

However, Friday’s failed downside attempt could indicate that constant bidding and short covering from long term trend systems are ongoing. Focus this week on Friday’s job report and whether gold can break above $1923, the 61.8% retracement of the August to March correction. Key support at in the $1845-55 area.

Forex

In forex, the flow in the week to May 25 was skewed toward continued dollar selling as the Bloomberg Dollar Index came within a whisker of the January low before seeing a small recovery in the days that followed the reporting period. Following six weeks of continued selling the Greenback short against ten IMM currency futures and the Dollar Index reached a three month high at $16.8 billion. There was some small selling of AUD and CAD but overall buyers had the upper hand, notably in euro (4.1k lots or $0.6bn equivalent), sterling (5.8k or $0.5 billion) and CHF (3.1k or $0.3bn).

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Both Gold and Copper Have Dad Two Months of Stellar Performance

In an odd way, the core root behind the massive upside moves in both copper and gold are a byproduct of the same event. The massive recession and economic contraction, which began in March 2020 led to extreme actions by both the Federal Reserve and other central banks worldwide. These actions continue to this day and are one of the primary reasons we see an end to the recession as countries worldwide begin to reopen as their economies rebuild.

It is inflationary fears and massive fiscal stimulus creating huge national debt that is a major component of dollar weakness and exceedingly strong gold pricing, which is now back over $1900 per ounce.

In the case of copper, its price surge is a direct result of stimulus programs both in the United States and China as well as other major Western economies rebuilding their economies through major infrastructure projects and for use in manufacturing.

Although China is the largest global producer of copper, internally it does not produce enough to satisfy its needs. According to the United States International Trade Commission, “China is the largest global producer of copper, even though it mines a limited supply of copper ores. This is explained by the fact that China imports significant quantities of copper ores and waste/scrap for smelting and refining into pure forms of copper to sell on domestic and international markets.”

As countries worldwide moved to create cleaner energy production, the use of copper in both solar and wind farms requires massive amounts of copper to integrate the systems. In the United States, part of the current administration’s new infrastructure proposal will require increased amounts of copper to reach their goal of cleaner energy production.

Copper Pricing

At the beginning of 2021 copper was trading at approximately $3.50 per pound. At the beginning of April copper had risen to $3.98 per pound and closed on the last trading day of May at $4.67 per pound. That means that copper has gained roughly $0.69 over the last two trading months, a gain of 17.34%. To a futures trader that represents a sizable gain as the contract size of copper is 25,000 pounds. Traders who were long copper over the last two months were able to glean $17,250 per contract, with the current margin requirement of $6000 per contract, which represents a substantial profit.

Even more impressive is the fact that the commodity strategists at Bank of America have forecast copper prices will rise to as high as $5.87 per pound. Commodity analysts at the CIBC bank are also predicting tremendous price increases anticipating that copper will rise to $5.25 a pound by the end of this year or the first quarter of next year.

copper monthly chart

Gold pricing

Gold prices have also had a stellar performance over the last two months gaining roughly $197 per ounce. That represents a net gain for the last two months of 11.55%. That also represents a tremendous gain for the futures traders who were wise enough to be long gold over the last two months. Since the contract size of a Comex futures contract is 100 ounces, traders who were long over the last two months would’ve realized a profit of $19,700 per contract.

Gold monthly chart

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

 

Will Silver Break Back Above $30 Before Gold Breaks $2000?

Often overlooked in favour of its precious metal cousin GoldSilver prices have tallied up an impressive gain of over 80% in the last year.

Silver prices are currently trading above $27 an ounce. That’s a whopping 86% rise from a year ago, when the spot price was around $14.50 an ounce.

In similar fashion to the whole commodities sector, Silver is once again starting to attract a lot of attention on a scale not seen since the global financial crisis in 2008.

There are several factors at play that have lured traders back into Silver, which include rising inflation expectations, the Fed’s pledge to keep rates lower for longer and of course the upcoming green energy and infrastructure spending boom.

If you want to know where Silver prices are heading next, then just take a look at the impressive gains across the rest of the metals complex from Copper, Iron Ore to Palladium.

This month, Iron Ore broke $200 a ton for the first time ever. Palladium broke above $3,000 to hit a new record high and Copper prices surpass an all-time high.

Silver is still relatively cheap compared with its peers and certainly has a lot of catching up to do. In my opinion, Silver is definitely the best trade right now and the one to watch heading into June.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Surges Past $1,900 – Is $2,000 The Next Stop?

Gold surged past the $1900 mark on Wednesday to hit to hit a 5-month high – trading very close to level where prices started the year.

Gold is once again starting to attract a lot of attention on a scale not seen since the global financial crisis in 2008 – amid rising inflationary pressures, combined with unwavering commitment from central banks around the world to keep rates lower for longer.

U.S Inflation in April accelerated at its fastest pace in more than 12 years with CPI jumping a sizzling 4.2% from a year earlier.

The increase in the annual headline CPI rate was the fastest since September 2008, while the monthly gain in core inflation was the largest since 1981.

If you want to know where Gold prices are heading next, then just take a look at the impressive gains across the rest of the metals complex from Copper, Iron Ore to Palladium.

This month, Iron Ore broke $200 a ton for the first time ever. Palladium broke above $3,000 to hit a new record high and Copper prices surpass an all-time high.

Gold is still relatively cheap compared with its peers and certainly has a lot of catching up to do.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

No Commodities ‘super-cycle’ but Copper Demand From Green Economy Bright

By Mai Nguyen and Shivani Singh

“We’re not a huge believer in a super-cycle now. You’ve started to see some central bank starting to taper bond buying and if they are not tapering, they’ve started to talk about it,” said Geordie Wilkes, head of research at Sucden Financial.

“We are also seeing emerging markets starting to increase some of their interest rates and really started to look at inflation and see how we can keep a cap on that after the rising asset prices we have seen,” Wilkes added.

A global demand recovery as some economies bounce back from the COVID-19 pandemic, strong liquidity injection from trillions of dollars worth of stimulus, and supply disruptions have fuelled some metals prices including copper and iron ore to record highs.

Some global banks are predicting a multi-year super-cycle for commodities, driven by shortages and strong demand from the renewable energy and electric vehicle sectors.

A poll at the LME Asia Metals seminar on Tuesday showed only 6.49% of the audience see “super-cycle” as an accurate word to describe the main force for commodities market trends in the next 12 months, while 33.77% voted for liquidity and inflation and 22.08% went for Chinese demand and a rebound for developed economies.

“We view COVID-19 and the subsequent recovery from COVID-19, even if that’s somewhat extended, to be somewhat transitory. There’s a possibility I believe in around 2023 we could see some (Federal Reserve) tightening,” said Thomas Horn, head of Macquarie Group’s commodities and global markets in China.

All experts agreed that the energy transition trend, which serves major economies’ carbon neutralisation targets, will benefit some metals, notably copper, nickel and lithium. [

Another poll at the seminar showed a dominating preference for copper as the most benefited metal in the next 6-12 months at 52.69% of all voted, followed by lithium at 16.13%, aluminium at 13.98%, silver at 8.6%, nickel at 5.38% and cobalt at only 3.23%.

Copper will be a dark horse, supported by infrastructure demand and the fast growing new energy vehicle market, said Liu Shoujian, deputy chief executive officer of CCB International.

Sucden Financial’s Wilkes said “copper demand from … the green economy is looking strong.”

A new energy vehicle needs 80 kg (176 lb) of copper compared with 23 kg in an internal combustion engine vehicle, while charging, wiring and grid investment of renewable energy will also generate demand for copper, he added.

Lithium, nickel and low-carbon aluminium will also be sought after amid the energy transition trend, Wilkes said.

Macquarie’s Horn said although copper might see a small surplus during 2022-2023 due to a supply recovery and slightly slower demand growth in traditional sectors, the energy transition will take over in the longer term.

“Continued growth of commodities leveraged to energy transition will win out and we see a key inflection point right around the end of 2024-2025 where that supply will plateau and we have high probability of a (copper) deficit,” Horn said.

(Reporting by Shivani Singh and Mai Nguyen; Editing by Stephen Coates)

Keep Your Eyes On Silver Prices Heading Into June

Rising inflation expectations and the Fed’s pledge to keep rates lower for longer – combined with the coming green energy and infrastructure spending boom, are some of the many factors that have revived interest in Silver.

Often overlooked in favour of its precious metal cousin Gold – Silver prices have tallied up an impressive gain of over 80% in the last year.

Silver prices are currently trading above $27 an ounce. That’s a whopping 86% rise from a year ago, when the spot price was around $14.50 an ounce.

If you want to know where Silver prices are heading next, then just take a look at the impressive gains across the rest of the metals complex from Copper, Iron Ore to Palladium.

This month, Iron Ore broke $200 a ton for the first time ever. Palladium broke above $3,000 to hit a new record high and Copper prices surpass an all-time high.

Silver is still relatively cheap compared with its peers and certainly has a lot of catching up to do. In my opinion, Silver is definitely the best trade right now and the one to watch heading into June.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.