Head of Commodity Strategy
Summary: What the charts currently tell us about the direction of copper, gold-platinum and crude oil.
HG copper jumped yesterday on the Trump administration’s decision to resume talks with China while delaying some tariffs from September 1 to December 15. Although we are seeing the rally fade somewhat today the white metal’s ability in recent weeks to manage a deterioration technical and fundamental outlook could bode well for the short-term outlook.
The technical picture has improved following the failed attempt to break below the $2.57/lb neckline on the weekly chart. The fundamental outlook has been weighed down by concerns that the trade war would accelerate the slowdown in global growth, thereby erode demand, not least from the world’s two biggest consumers.
Macro driven funds looking for a hedge against recession have accumulated a record short in HG copper futures. During a two-week period to August 6 money manager more than doubled their net-short to 74.6k lots, a position which is now somewhat under water. Continued short covering will find resistance at $2.67/lb. and most importantly $2.70/lb.
Gold’s phenomenal rally to a six-year high was tested yesterday following the US tariff announcement. The violent $55/oz retracement from $1535/oz was more an indication of how crowded the trade has become than a change in the fundamental outlook. We maintain a bullish view on gold driven by the race to bottom in global yields and central banks turning into easing mode. But in the short-term it might be worth take a closer look at platinum which has been struggling amid the downturn in global car sales and production.
The discount to gold reached a record $668 yesterday before recovering to the current $650. While the speculative gold net-long reached a near record high in the week to August 6 the equivalent long in platinum is bang on the five-year average so not stretched at all. Traders worried about a technical correction in gold may find some value in switching to platinum instead.
Crude oil has spent the past month trading within a near 15% range with continued downgrades to global demand growth only somewhat being off-set by tightening supply from Opec+. One key development has been the contraction in WTI’s discount to Brent crude oil from $11/b back in June to the current $4.5/b. The spread has narrowed in response to the global slowdown impacting Brent, the global benchmark, and increased concerns that US shale oil producers will struggle to meet their production growth targets. This as many producers continue to burn cash while relying on funding to stay operational.
While Brent crude has recovered back above $60/b the technical outlook for WTI looks somewhat better after once again managing to find support above $50/b. The range-bound behavior however looks set to continue with focus on US-China trade talks and continued production restraint from Opec led by Saudi Arabia.
The WTI chart below points towards resistance at $68.80/b, the recent high and trend-line from the April high.
Later today at 14:30 GMT the US Energy Information Administration will release its ‘Weekly Petroleum Status Report’. Some fireworks can be expected given the discrepancy between market expectations for a 2.5 million barrel drop and the 3.7 million barrel increase reported by the American Petroleum Institute last night. The table of expectations can be found here.
Bond. Long Bond(s)
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Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
