Chinese Economic Reports Impact Copper

COPPER

While the damage on the March copper chart this morning is not severe, the bear camp has clearly extended its control from last week. Obviously, disappointment toward the Chinese economy continues to weigh heavily on copper especially with a handful of weak Chinese economic indicators released overnight. Fortunately for the bull camp, a slight uptick in Chinese industrial output countervailed a much weaker than expected Chinese retail sales reading. However Chinese crude steel production declined, Chinese fiscal revenues fell by 0.6% in the first 11 months of 2024 and property investment from the first 11 months of the year fell by 10.4% leaving Chinese economic sentiment negative. Fortunately for copper bulls, the fear of softening Chinese copper demand is partially offset by eight straight weekly declines in Shanghai copper warehouse stocks which are now at the lowest since February. The bull camp should also hold out hope that record low Chinese government bond yields combined with government promises of further rate cuts and more fiscal stimulus will help the market find value at slightly lower levels.

PRECIOUS METALS

While the gold market is tracking in positive territory early today, gold is clearly missing out on the forces driving bitcoin prices into rare air above $107,000. Even though the Press overnight suggests gold is finding support from dollar weakness, we are skeptical as dollar declines this morning are minuscule and the currency index remains in a well-defined uptrend channel. However, we suspect the approaching FOMC meeting (Thursday) is discouraging dollar buyers and encouraging some gold buyers. On the other hand, market probabilities of a 25 basis point rate cut on Wednesday remain near certainty levels at 97.1%, which could mean the markets have mostly priced in a reduction. Fortunately for the bull camp, the markets were presented with a wave of international central bank rate cuts last week thereby tempering global slowing fears. Holding back the minimal upward bias in gold and silver prices in the early trade today is an extension of an outflow pattern in gold and silver ETF holdings from last week. Silver ETF holdings have aggressively collapsed recently with last Friday holdings posting a noted outflow of 4.8 million ounces. Despite the ability to initially reject a fresh five-day low early this morning, we leave the bias pointing down in gold with the net spec and fund long in gold capable of significant long liquidation.

 

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