Head of Commodity Strategy
Summary: Today's Washington-led escalation of the Sino-US trade war surprisingly attracted a limited reaction from global markets with Chinese stocks trading higher on the day with the yuan being close to unchanged.
The combination of this latest move by the US having been flagged well in advance and news from China that it plans to increase infrastructure spending to offset the negative growth implications helped settle a few nerves. While gold remains stuck due to the limited reaction in bonds, stocks and not least the dollar, we have seen industrial metals, including platinum move higher.
HG copper (+2%) is close to challenging the recent high at $2.72/lb with the potential for increased spending from the world’s largest consumer helping reduce some of the trade war angst that has kept it under pressure since July.
Platinum (1.6%) has seen its record discount to gold contract to a five-week low. Since April it tested a $420/oz record discount to gold on a couple of occasions; the move higher today has reduced the discount to $390/oz and the spread is currently challenging the downtrend from early 2017.
Silver, meanwhile, has struggled to catch a bid despite its semi-industrial credentials. It continues to hover just above the important $14/oz level while trading close to a multi-decade low against gold, as seen through the gold-silver ratio, currently at 84.70.
All of the four major metals covered by the Commitments of Traders report have been under pressure since the trade war broke out back in June. In order for silver to move higher, it needs gold to catch a bid thereby potentially starting to challenge the bearish conviction currently held by hedge funds.
Gold as mentioned remains stuck in a relatively tight range around $1,200/oz. and would need a weaker dollar and potentially also weaker stocks before challenging those holding a negative price view. The FOMC meeting on September 26 is widely expected to yield another rate hike and should have a limited impact on gold. More importantly, and more challenging, is a renewed rally in 10-year US real yields which have climbed to 0.9%, a near four-month high.
A break above $1,214/oz and probably also $1,220/oz is needed before potentially seeing short-covering carrying it higher. Until such time we maintain a neutral view on gold with silver and platinum potentially providing a better opportunity given the aforementioned relative and absolute cheapness.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.
