Silver and copper in focus after recent declines Silver and copper in focus after recent declines Silver and copper in focus after recent declines

Silver and copper in focus after recent declines

Ole Hansen

Head of Commodity Strategy

Summary:  Silver prices hit a two-month low on Monday, with the trigger being a technical break below key support while the driver was an ongoing risk aversion towards metals depending on growth and demand, not least in China. Copper meanwhile remains rangebound with China growth concerns being offset by the prospect for a tightening market outlook with miners cutting production forecasts amid harder-to-mine deposits and rising costs. In this update we also take a look at recent investor positioning and how they may impact the short-term outlook.


Silver prices hit a two-month low on Monday, with the trigger being a technical break below key support while the driver was an ongoing risk aversion towards metals depending on growth and demand, not least in China, the world’s top consumer, where the economic outlook continues to darken with stock markets in Hong Kong and Shanghai hitting multi-year lows. With gold continuing to attract support above $2000 in anticipation of rate cuts, lower inflation and continued central bank demand, the XAUXAG ratio has risen to a 15-month high, reflecting silver’s relative cheapness. 

Since early December when silver, together with gold, saw a premature and unsustainable spike, the price has suffered a relatively steep fall, culminating in Monday’s technical drop below support-turned-resistance at $22.50. With gold holding steady around $2025, the gold-silver ratio briefly spiked above 92 (ounces of silver to one ounce of gold) before bargain hunters appeared to provide support. For the market to recover its poise a break back above $22.50 is the minimum requirement, with the steep downtrend from December offering a later challenge just below $23. A sustained break lower could see short sellers target channel support in the $21.50 area.

Source: Saxo

Just like gold, silver has seen net selling from ETF investors since 2022, when the Federal Reserve embarked on its aggressive rate hike cycle, with current total holdings at 694 million ounces being the weakest since May 2020. Meanwhile, in the futures market, speculators such as hedge funds and CTAs held a 6,000 contract, or 30 million ounce long in the week to January 19, not far below the one-year average around 11,000 contracts. Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.

Copper meanwhile remains rangebound with China growth concerns being offset by speculation the Chinese government will have to do more to support an ailing economy, and not least the prospect for a tightening market outlook as the green transformation continue to gather momentum and miners cutting their production forecasts as they being challenged with harder-to-mine deposits, rising costs, water restrictions and increased scrutiny of new permits.

Industrial metals have generally posted a weak start to the year as the outlook for global and not least Chinese manufacturing and construction activity still is under scrutiny, for now more than offsetting calls for stronger stimulus measures in China, and the potential positive impact of restocking once an expected series of rate cuts from major central banks begin later this year. The Bloomberg Industrial Metal index trades down around 4% on the month with losses being led by aluminum and zinc while copper, for the above-mentioned reasons has managed to limit the losses, despite some recent aggressive selling from speculators in the futures market.

According to the latest Commitment of Traders report from the CFTC, speculators had during a two-week period to January 16 shifted their net position in the HG futures contract from a 10k long to a 25k short, the biggest bet on lower prices since July 2022. Combining this observation with a volume weighted average price (VWAP) during this two-week selling period around $3.8050, and the risk of another short squeeze may attract fresh attention should the price manage to break higher from here. We maintain a positive outlook for copper given the prospect of an increasingly tight market towards the second half of the year, but given current China worries and ongoing speculation about the timing, pace and depth of incoming US rate cuts, the short-term direction will likely be decided by short-term trading strategies. 

HG copper is currently trading near the center of a 40-cent wide range, and following early January weakness the market is now showing signs of consolidating with a band of key moving averages offering resistance between $3.79 and $3.825.

Source: Saxo

Commodity articles:

19 Jan 2024: Commodity weekly: Middle East, US rates, Bitcoin ETFs & Freight rates
17 Jan 2024: 
Natural gas focus switch from cold to milder weather ahead
16 Jan 2024:
 Data dependent precious metals continue their bumpy ride
12 Jan 2024: 
Commodity Weekly: Geopolitical risks lift crude and gold prices
9 Jan 2024: 
Q1 Outlook – Year of the metals
5 Jan 2024: 
Commodity weekly: Bumpy start to 2024
4 Jan 2024: 
What to watch in crude oil as 2024 gets underway
4 Jan 2024: 
Podcast: Crude oil and gold in focus as a new year begins
21 Dec 2023: 
Weather, rates and unrest paint muddy picture for commodities in 2023
19 Dec 2023: 
Crude and gas pop on Red Sea Disruption Risks
14 Dec 2023: 
Fed's dovish tilt adds fresh fuel to precious metals
13 Dec 2023: 
Video - Why gold may enjoy a Santa rally for the 7th year in a row
12 Dec 2023: 
Video - Investing in Uranium
1 Dec 2023: 
Commodity weekly: Tight supply risks boost copper; OPEC+ struggles to control crude
30 Nov 2023: 
Precious metals take top spot for a second month
23 Nov 2023: 
A nervous crude oil market awaits OPEC's next move
23 Nov 2023: Podcast: 
Will Santa deliver another golden gift
22 Nov 2023: 
Will gold and silver see another Santa rally?
17 Nov 2023: 
Commodity weekly: Crude overshoots; silver the comeback kid
16 Nov 2023: 
Podcast: Silver comeback, watch OPEC as crude oil slides lower
16 Nov 2023: 
Crude oil weakness adds focus to upcoming OPEC meeting
15 Nov 2023: 
Soft CPI lifts gold and beaten down silver and platinum
12 Nov 2023: 
Copper supported by green transformation demand and peak rate speculation 
10 Nov 2023: 
Commodity weekly: Crude oil risks overshooting the downside

Previous "Commitment of Traders" articles

22 Jan 2024: COT: Commodities short-selling amid China woes and Fed caution
15 Jan 2024: 
COT: Grains sector slump continues; Mideast risks lift crude demand
8 Jan 2024
COT: Weakest commodities conviction since 2015
18 Dec 2023:COT: Crude long hits 12-year low ahead of FOMC bounce
11 Dec 2023: 
COT: An under owned commodity sector raising risk of an upside surprise in 2024
4 Dec 2023: 
COT: Speculators add further fuel to gold rally
20 Nov 2023: 
COT: Crude selling slows, grains in demand
14 Nov 2023: 
COT: Crude long slumps; agriculture sector in demand

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.