Copper price extends rally as Beijing catches hedge funds short

Copper has been out of favour with hedge funds for a long time.

The red metal is the ONLY commodity in a list that includes everything from lean hogs and NY Harbor Ultra-Low Sulfur Diesel to cocoa and gold, that so-called managed money investors have placed in a net short position.

Hedge funds on the New York Comex have placed bets to the tune of 375 million pounds of copper that the price will go down according to CFTC data.

This year those bets have paid off big time with copper falling to a near four-year low of $2.88 a pound mid-March.

After a steady recovery, the price of the metal dipped below $3.00 again last week.

But when a new report surfaced Wednesday indicating that the Chinese State Reserves Bureau has bought up to 350,00 tonnes of copper between March and April to move into state warehouses it lit a fire under the price.

Orders from Beijing to buy when prices fall below $3.15 and to pick huge loads should copper go below $3.00 immediately put a floor under the price.

That sent managed money scrambling for July contracts to cover their positions.

After a jump yesterday, Friday saw copper consolidating its gains trading at a seven-week high just above $3.10.

Beijing was a big buyer during the height of the 2008 financial crisis, making the most of prices as low as $1.30 a pound

The last time the SRB intervened in base metals markets was in June 2013 when the copper price turned around before hitting $3.00 after sliding from a $3.70 high in February of that year.

The Chinese government, which naturally doesn't disclose purchases publicly, was also believed to be a big buyer during the height of the 2008 financial crisis when it made the most of prices as low as $1.30.

At the time of the 2013 reports, one metals trader told the FT the SRBs purchases "may be interpreted as a bullish sign," adding:

"If you had bought copper every time the SRB bought copper you would have made a fortune"

Fresh data about hedge funds' short and long positions as at Tuesday this week will be released by the US Commodities Futures Trading Commission after the markets close Friday.

It should reveal whether managed money anticipated the Beijing-inspired rally or blew their copper bets.

Sell In May And Go Away ...

As readers will recall from our recent preview of what equity performance this month was supposed to look like, at least based on historical data, April was supposed to be the best month of the year.

Sadly for the bulls, it has been anything but. That's the good news. The bad news is that as most know the old saying "sell in May and go away", there is nothing but pain for the next six months.

As FBN's JC O'Hara explains, the “Sell in May” slogan heard around Wall Street has some truth behind it. The gist of the saying suggests it’s better to be out of the market come May and re-enter during the fall months.

We ran the numbers over the last 20 years and found validity to the statement. We created a model that went long the market Jan, Feb, March, April, Oct, Nov & Dec. as well as a second model that went long the market May through Sept 30. We concluded that the May – Sept time period model, on average over the past 20 years, would have lost you money. The majority of the time the market was unimpressive over those summer months. The majority of the markets returns were housed in the first model that was long the months into May and the months after Sept. While there were instances where May – Sept was negative, the risk adjusted returns suggests investors do not necessarily need to exit the market but should expect flat markets with little if any of the yearly gains coming during this time period. The real money was made during other 7 months of the year. As we approach May we are not in the SELL camp yet, but rather acknowledge the fact that a volatile, stagnant, sideways moving market is what history implies. Over the next few pages of this report we examine the past 20 years and highlight where the majority of returns are found.

Naturally, all of the above implies that rigged, centrally-planned markets are even remotely comparable to normal historical markets, and trade paterns. They aren't. Still, for those who are curious what the infamous Sell in May phenomenon looks like, here it is:

And the full breakdown of the past 16 years:

Wheat Is Cheap, Measured By Gold And The Dow Ratio

Priced in gold and stocks, wheat is near multi-decade lows. That may not last.

Measuring the cost of anything in currency can be misleading. As we know, inflation can be gamed by authorities to appear low, and supposedly low inflation is actually high inflation if wages are declining while prices rise.

Longtime correspondent Harun I. has often recommended in these pages that we look to other yardsticks to get a more realistic assessment of price and value.

For example, what is the cost of wheat when priced in gold rather than dollars? Harun has graciously provided a chart of the wheat/gold ratio, which I marked up to identify when gold was expensive and wheat was cheap, and vice versa.

Priced in gold, wheat is at multi-decade lows; technically, this long downtrend appears to have reversed into an uptrend. If this is so, the only direction in the price of wheat (priced in gold) is up.

Here is wheat priced in the Dow Jones Industrial Average (DJIA). In essence, how many bushels of wheat can be purchased with one share of the Dow index?

In 1975, at the nadir of the stagflation-ridden stock market, wheat was expensive and the Dow cheap--once again, this is pricing wheat in the Dow, not the dollar.

At the top of the stock market bubble in 2000, the Dow was expensive and wheat was cheap.

When the Dow hit bottom in March 2009, wheat went up when priced in stock market shares.

Despite some impressive volatility since 2000, the trend in the price of wheat (when priced in stocks) is clearly up. Once again, it seems a long-term downtrend in the price of wheat has reversed and is now an uptrend.

The only way for wheat to regain its previous trading range is for gold and the Dow to both plummet or for wheat to rise in cost, i.e. it takes more gold or shares of the Dow to buy a bushel of wheat.

Priced in gold and stocks, wheat is near multi-decade lows. That may not last.Technically the trend has reversed, suggesting much higher prices--in dollars, gold or stocks--for wheat and indeed, by extension, for all food.

We may be tasting the first minimal increases in food prices that could soar to unimagined heights in the years ahead.

Ukraine Gives Russia 48-Hr Ultimatum Or "We Will Fight"

Ukraine's foreign ministry has given Russia a 48-hour ultimatum to explain its military exercises near the nation's border; or, as foreign minister Andriy Deshschytisa warns "we will now fight with Russia troops."

As AP reports,

Ukraine's foreign minister has blasted the Russian decision to start military maneuvers along Ukraine's border and said his country will fight any invading troops.

Andriy Deshchytisa said Russia's decision Thursday to launch the military exercises "very much escalates the situation in the region."

Talking to The Associated Press in Prague, Deshchytisa says his country has been taught a lesson by Russia's annexation of Ukraine's Crimean Peninsula. He says "having this experience, we will now fight with Russian troops if ... they invade Ukraine."

He says "Ukrainian people and Ukrainian army are ready to do this."

Deshchytisa says the new Russian military exercises are taking place "even closer to the Ukrainian border than it was planned earlier" and demanded the withdrawal of Russian troops.

It seems the red-line is about to be crossed by both sides... though as long as Putin does not hold an emergency press conference, it seems BTF WWIII is back on.

INFOGRAPHIC: Quick primer on cobalt and batteries

Fortune Minerals is advancing a gold-cobalt-bismuth-copper mine in Northwest Territories, Canada and readying a metals processing plant in Saskatchewan. 

The London, Ontario-based junior has put together this infographic on the use of cobalt in rechargeable battery technologies which is set to rocket in coming years.

The REAL Reasons We’re Drifting Towards World War III

War: The Big Picture

All of the talk of war in the Ukraine and Syria is confusing … so here’s an executive summary:

• War is horrible for the economy, and makes the American people poorer

• The American people are overwhelmingly opposed to more war in Ukraine, Syria, Iran and elsewhere

• But you don’t have any say in issues of war or peace. The U.S. is an oligarchy … not a democracy or a republic

• Indeed, opposing war may get you labeled as a terrorist (background)

• War makes a handful in the military-industrial complex and big banks rich

• So endless war is a feature – not a bug – of U.S. policy

• Moreover, empires usually launch wars against up-and-coming rivals, and so the U.S. is headed on acollision course with China

• And the powers-that-be are desperate to ramp up war to distract the population from our economic problems

• The neoconservatives planned regime change in  Syria and other countries 20 years ago, and Obama is implementing the same plan.  Indeed, not only are the Neocons back … they never actually left

• But it’s not a party thing.  The Dems have been on board for many years as well.  For example, Jimmy Carter and Barack Obama’s foreign policy guru said in 1997 that the U.S. had to gain control of Ukraine

• The U.S. and NATO will carry out false flag after false flag until they can create a “justification” for war which will people believe

• They will support Al Qaeda terrorists in the Middle East, neo-Nazis in Ukraine and other bad guys to promote their military objectives

• The American media – including the big “alternative” sites – are always pro-war – and coverage of Ukraine and Syria is arguably even worse than in the run up to the Iraq war – so the American people are not hearing the real story

• Even supposedly “open voting” sites like Reddit routinely censor stories which challenge the status quo in any fundamental way.   For example, Reddit’s front page has consistently carried anti-Russian stories on Ukraine

• Stories which give balance or a broader perspective  are stopped before they get traction

That’s why we’re drifting towards WWIII …

Russia Warns West "Remove Forces"; Begins Military Exercise On Ukraine Border

UPDATE: Dutch fighter jets were scrambled after Russian bombers approached Dutch airspace; the Russian planes turned away

With both sides appearing to have entirely un-de-escalated and the truce deal now a thing of the past (besides a few hundred Dow points), the Russians are speaking up today - and are not happy:

• RUSSIA IS EXTREMELY SURPRISED BY KIEV AND WASHINGTON'S "DISTORTED" INTERPRETATION OF AGREEMENT REACHED IN GENEVA LAST WEEK ON DE-ESCALATION OF UKRAINE CRISIS - FOREIGN MINISTRY
• RUSSIAN FOREIGN MINISTRY SAYS KIEV AND WASHINGTON "CLOSING THEIR EYES" TO PROVOCATIVE ACTIONS BY NATIONALIST FORCES IN UKRAINE

And, on the heels of Turchynov's official restart of the so-called anti-terrorist operation, Russia is calling on Ukraine to pull back military from Ukraine's southeast... and rattles its sabre by undertaking a military exercise on the border.

Bloomberg reports,

Russia is surprised by distorted interpretation of Geneva accord from govts of Ukraine, U.S., RIA Novosti reports, citing Russia’s Foreign Ministry.

*RUSSIA CALLS ON UKRAINE TO REMOVE MILITARY FROM SOUTHEAST: RIA

Russia says Ukraine, U.S. closing eyes to provocations by right-wing extremists: RIA

Russia still believes partners are serious about resolving crisis in Ukraine: RIA

and in addition

• RUSSIAN MILITARY CONDUCTS MILITARY EXERCISE IN ROSTOV REGION, BORDERING UKRAINE - DEFENCE MINISTRY OFFICIAL

All of this sets the scene for an important set of meetings next week...

Russia ready to host EU, Ukraine energy officials in Moscow or consider other cities for talks, Russian Energy Ministry spokeswoman Olga Golant says by phone.

Golant confirms EU Energy Commissioner Guenther Oettinger invited Russia to gas talks

Slovakia planning talks on use of gas pipeline in reverse to supply Ukraine on Apr. 28 in Bratislava, Eustream pipeline operator spokesman Vahram Chuguryan says by phone

So to sum it all up:

1. The truce deal is dead
2. Russia blames Ukraine/West for breaking deal and misunderstanding it
3. Ukraine/West blame Russia for not unilaterally pulling back its forces
4. Russia is warning Ukraine to pullback military from Russia-held southeast Ukraine ("or there will be retaliation")
5. Russia is rattling its sabre by military exercises on the Ukraine border (after US sends another warship into the Black Sea)
6. Against all this tension, gas pipeline talks are set to begin shortly.