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COPPERUSJUL20 - HG Copper
SILVERJUL20 - Silver
XAUXAG - Spot Gold-silver ratio
Industrial metals such as copper started the week on a firm footing, reaching a seven-week high, before retracing lower. Just like crude oil and growth and dependent commodities it has now established an uptrend with rising prices as easing lock-downs support a pickup in demand. Adding to this multiple initiatives from governments and central banks have all helped improved the sentiment among growth dependent commodities. This despite facing the biggest slump in global growth and rise in unemployment since the great depression.
Also supporting metals are reports from Chinese research hoses that commodity traders are hoarding tangible assets. Metal companies got cheap COVID-19 loans from banks and they seem to have piled that money into commodities, betting on a price recovery that is more profitable than their production activities.
Last week the war of words or COVID-16 blame game between the U.S. and China temporarily saw the off-shore Chinese Renminbi (Yuan) spike to 7.15 before easing to the current 7.10 level. Whether the hoarding is also driven by speculation about a weaker currency or other economic developments remains unclear. This emerging behavior has to a certain extent been supported by the recent price action which has seen demand for some metals being stronger during Asian trading hours.
HG Copper reached an eight-week high on Monday at $2.43/lb before running out of steam. News from China remains encouraging with PBOC promising to do more to support the economy together with a recent drop in inventories monitored by the Shanghai Futures Exchange. The outlook however in our opinion remains one of caution. Rising supply from the reopening of virus hit mining operations raising the question whether the pickup in demand, especially from Chinese manufacturers will be enough to avoid a build in surplus stocks this year.