Good morning everyone and welcome to this week’s look at the Silver ,Gold and copper markets with GKFX.
This weeks receding geo-political risks and the continuing strength in US dollar have continued to weigh on performance of gold and silver in dollar terms. However, if the benign scenario that is priced into global equities and other cyclical assets proves to be wrong then the current low levels being experienced in the precious metals and gold in particular could prove to be an effective offset hedge.
Silver’s trading range has moved sharply lower over the last week. Overhead resistance is now sitting at around the $19.80 to $19.90 level basis spot while good support is probably to be found in and around the $19.00 to $18.50 level. Silver fell 1.7% last week after falling by 0.1% in the previous week.
From a technical point of view the next support sits $19.00 followed closely by $18.72. This is the support line dating back to July 2013. Then the next level comes in at $18.62.This was the low hit in May this year. But the really important level is seen as being $18.22. This was the June 2013 pivot level. After that there is very little in way of support.
Most analysts believe that silver’s fundamentals are weak and that the price bias is to the downside. But that doesn’t mean you should run out and short silver.
The silver market is already full of shorts and we could well see some substantial short covering rallies over coming days. These rallies are easy enough start off.
All you need is for one or two macro funds to begin supporting a price level. Let’s say for the sake of illustration that the levels chosen to support are $19.00 and $18.80. Combined with this price support operation the funds also buy lots of call options in the $19.20 and $19.30 area. The trap is thus set.
As the shorts sell and fail to decisively break, say, $19.00 they begin to cover in and the price begins to rise.
The option grantors will enter the market and buy some forward metal as a bit more cover for their calls. That helps to push the price a bit higher.
And then with any luck you will see many more shorts decide to cover in their positions. This in turn will trigger off more buying from the option granters and it may also trigger off some CTA buying. And then before you know it the price has put on 10 to 15 cents an oz and created a more bullish technical picture.
In the medium term analysts expect the current trend of destocking and price appreciation to resume as the spluttering global economic recovery gathers momentum. Although mining supply remains strong, total supply is more likely to continue to decline unless higher prices induce further recycling and scrap supplies. As we noted in a recent review, In 2013, according to data from the Silver Institute, despite a new record high for mining supply, total supplies of silver declined about 2.5% due to a sharp reduction in recycling on the back of the price decline.
从中长期技术面来看，分析师们认为，随着全球经济复苏断断续续的增强，当前的去库存和升值的趋势仍将继续。尽管采矿业供应仍然强劲，但是除非价格进一步上涨并引发废弃和回收，总供给有极大可能会持续下滑。正如我们在近期回顾中提到的，根据世界白银协会(The Silver Institute)的数据，撇除采矿业供应量的新高，受到价格下跌而回收量剧烈减少的影响，2013年白银的总供应量下滑了2.5%。
So in conclusion what we are saying is that we think there is very little value to be had by adding new shorts at current price levels.
The surprise rate cut of 10bps by the ECB led to the sharpest weekly drop in the Euro since the week ending January 31 while gold in USD terms declined 1.5%. after rising by 0.7% in the previous week.
Gold’s trading range has also moved sharply lower. Overhead resistance is now put at the $1,290 to $1,300 level basis spot while support is seen in in and around the $1,250 to $1,240 area.
The yellow metal moved lower on Monday on the back of a strong dollar and a news report saying the San Francisco Fed research team believe , and I quote :
"...Low volatility across financial markets may signal investors are underestimating how quickly the Federal Reserve will raise interest rates".
This triggered off a deeper sell-off gold taking it to a fresh three month low of $1252.05. Eventually the session closed out a little firmer around $1257.
It seems that gold investors are resigned to the fact that the US economy is in recovery mode and were prepared to overlook one poor payroll result.
That said of course of course Gold could still gain haven demand if Ukraine ceasefire proves to be short-lived. The fragile ceasefire between Ukraine and Russian-supported rebels appears to be under threat already after multiple reports of shelling between the two sides so bears beware as the geopolitical premium that has been all but been removed from gold prices of late could very quickly return if the ceasefire completely falters.
Open interest in New York Comex futures and options is now close its lowest in five years as gains in the U.S. economy, the dollar and equities take investor interest away from gold.
The net-long position in gold declined 20% to 74,031 futures and options contracts in the week ended September the 2nd, the lowest since June 17 according to the CFTC. Short positions, however, rose by 44% during the same period.
The SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a good measure of investor sentiment, said on Friday that its holdings fell 4.78 tonnes to 785.73 tonnes on Thursday. This was the biggest one-day fall since April 16.
全球最大的黄金上市交易基金（ETF）——SPDR Gold Trust基金公司在上周五的报告中表示，9月4日黄金持仓量较前一个交易日减少4.78公吨至785.73公吨，是自4月16日以来的最大单日跌幅。
The market also continues to see aggressive macro fund selling whenever gold rallies in any volume and we are also seeing continuing producer forward selling.
Some commentators seem shocked that producers would be selling. But my response is that it makes very good sense to be selling and locking in a forward price well above your own production cost in this fragile economic climate.
JPMorgan Chase Bank issued a fascinating report recently about gold producers’ costs of production. The bank tracks on a quarterly basis the cash costs for almost one-third of global gold production and the all-in-sustaining costs for approximately one-quarter of global production.
From their sample set, the 95th percentile of cash costs is currently $1,100/oz. But the bank’s analysts make the very crucial observation that the actual marginal supplier to the gold market is scrap.
Scrap gold contributes around 30% to global gold supply. Physical gold market observations suggest that sizeable increases in scrap supply come onto the market when the sustained gold price is above $1,220/oz.
The longer the price stays below $1,220 the quicker scrap supply dries up. And after a bit the laws of supply and demand kick in and, all other things being equal, the price begins to rise again.
Interestingly enough, the Chinese are beginning to buy gold again at these lower levels. The Shanghai Gold Exchange premium over loco London has risen to the $4 to $5 an oz range from $3 in recent sessions. Some Chinese bullion dealers, we are told, are recommending some scale down buying to their clients now. They see the floor as being around the $1,250 area basis spot.
Unfortunately, Chinese and Indian demand is not strong enough to push gold prices higher. But Asian buying may prove strong enough to hold prices in and around $1,250 area. Additionally the so-called ‘Love Trade’ from Asia, where the Indian and Chinese population bought gold jewelry for their loved ones is cited as one of the reasons why gold climbed to $1900 in 2011. The slowdown in GDP per capita in these countries over the past three years, has impacted the ‘Love Trade’, and now India is on the way back up now, so that is also positive for the gold price moving forward again.
不幸的是，仅凭中国和印度的需求还足以把黄金价格拉高。但是亚洲买盘也许证明了其强劲势头能够撑起$1,250区域左右的价格， 此外，在亚洲的所谓“Love Trade”，方面，中国人和印度人为爱人购买黄金首饰也是2011年黄金价格攀升至$1900的原因。过去三年内这些国家人均GDP的下滑已经影响到‘Love Trade’，目前印度市场正在恢复，因此也有利于金价的再次反弹。
In the meantime, we expect price rallies to be scale up sold into by the macro funds and the producers. U.S. short-term interest rate futures contracts rose on Friday after the non-farm employment report was released. The current reasoning is that the Fed will not raise interest rates until the second half of 2015. But rates are going to rise whether or not it is in the first half of 2015 or the second half and Rising real interest rates are a negative for gold.
But to end on a more bullish note, it is worth pointing out that historically September is gold's best performing month, returning +2.16% on average since 1969. So seasonality may help to provide some support for gold prices this month. And you may also see a short covering rally develop before the month is out.
Finally, some local news.
The operator of the London gold price benchmark said on Thursday it has formally started the process to find a new administrator for the century-old mechanism that will halt the telephone call that four institutions enter twice a day in favour of an electronic solution.
The London Gold Market Fixing, along with the London Bullion Market Association, said in a statement that the choice will be announced in October, and its implementation will be completed by the end of this year.
Moving on to Copper.
The Red metal seems to be consolidating. Good support seems to be developing in and around the $6,880 area basis three months while there is still strong overhead resistance in and around the $7,010 area. Copper fell 0.1% last week after falling by 1.3% in the previous week.
Good buying interest always seem to develop in and around the $6,920 area. The spreads still remain tight both in the nearbys and the farther dated ones. Chinese traders have been sellers of upside January call options in the market this week.
The copper market seems to have ignored the weak U.S. jobs data on Friday but seems to have some faith that the ECB’s move to cut interest rates will help to spur an economic revival in Europe. Europe consumes around 20% of global copper production.
And the market seems to be slightly less concerned about Chinese growth prospects this year. One reason for this is the fact that copper supplies in China still seem to be fairly tight. In fact some analysts estimate that, thanks to SRB stockpiling earlier this year, the Chinese copper market was in a 50,000 tonne deficit during the first eight months of this year.
Prices are lower this morning as the market is disappointed at the Chinese copper import figures. China's imports of unwrought copper and copper fabricated products totalled 340,000 tonnes in August, down 12.3% year-on-year and flat month-on-month.
China's consumption of refined copper for the rest of 2014 probably now hinges on new orders from the power sector. Investment in this sector recorded a rare fall in the first half of the year. Tight credit conditions have cut demand from smaller end-users. The power sector accounted for nearly half of copper demand last year in China.
Investment in new power networks had been expected to rise more than 10 percent this year, industry sources say. But in the first half investment actually fell 0.6 percent from a year before, according to data from the China Electricity Council.
Yang Changhua, a senior analyst at the research firm Antaike Information Development said last week that: "If investment in the power sector doesn't rise in the second half, we'll have to adjust down our consumption forecast for 2014."
Antaike has forecast that China's consumption of refined copper would rise 6.7 percent from last year to 8.75 million tonnes. The State Grid Corp of China, the dominant investor in power networks, said in May it was being audited, which industry sources said was likely to have slowed network investment. It was unclear what the aim of the audit was.
In the meantime would anticipate that prices will drift lower in the coming sessions before attracting any real bargain buying.