Sunday, June 22, 2014

Copper Sentiment Agrees With Technicals

Sentiment for copper prices appears mixed to negative. The worst prospects for demand may be in China, where copper imports have a large effect on worldwide prices. Currently, the majority of China's copper pipe manufacturers now believe prices for their feedstock will decline further. At the same time, Chinese authorities have indicated very recently that they may crack down on the ability of businesses to import the metal as a way of providing collateral for business loans. Halting that practice may result in more copper being released from bonded warehouses where it sits unused, and that is likely to drive price down.
Our technical analysis continues to agree with that downward forecast, although we may see price rise for a few weeks even in the face of immediately bearish sentiment before the decline sets in again.
In our projection into 2015-2016, we still believe the 1.78 area is a likely long-term downward target, although the path from here to there will have some zigzags along the way. The monthly chart for our long-term projection can be found at our website.
Nearer-term price targets also remain unchanged, but it is helpful to see how price is behaving with respect to the downward channel on the weekly chart below. Clearly price recognized the resistance we identified as being just overhead at the end of May, and it has fallen away from that area. Major stepping-stone support levels to watch through the remainder of the year include 2.67, 2.52, and 2.34.
Copper Futures - Weekly Chart
The daily chart shows price as retracing part of the recent wave 'i'. We believe the retrace can go a bit higher, and the area from 3.1220 to 3.1500 represents a good place to watch for the downward trend to resume. We have drawn a speculative path on the daily chart below.
Copper Futures - Daily Chart
It is important to keep in mind that price can accelerate downward at this point. It is safer now to sell from minor highs rather than to try catch upward moves.

It's Never Different This Time - 1987 or 2014?

While the price analogs of the last few year's exuberance in US equity markets are enough to worry all but the most systemically bullish "believer"; we suspect the following article from the LA Times In the Spring of 1987 will raise a few hairs on the back of the neck of perpetually optimistic extrapolator..

It's never different this time..
"One of the largest bullish factors is burgeoning worldwide liquidity, thanks to expansive monetary policies by central banks. That has helped fuel a surge of foreign investing that could propel US stocks higher, regardless of what happens to the American economy, some analysts say...

Low interest rates also help stocks by making Treasury securities, certificates of deposit and other interest-paying investments less attractive. The sluggish economy, meanwhile, keeps the Federal Reserve from driving up interest rates and prevents inflation from overheating...

Also, the sluggish economy--by keeping manufacturing rates low--discourages money from flowing out of financial assets into such investments as factories and machinery."
     - LA Times, March 8, 1987; a few months before the October 1987 crash
Read that again!!
Never different.

It's Never Different This Time - 1987 or 2014?

Saturday, June 21, 2014

"Notable Improvement" in Fundamental Outlook of Aluminium- Merrill Lynch

"Notable Improvement" in Fundamental Outlook of Aluminium- Merrill Lynch
Bank of America Merrill Lynch said during Thursday that the global aluminium market had seen “Notable Improvement” in its fundamental outlook. The BofA said that the improvement in market balance has perhaps been remarkable for aluminium that was set to be falling into deficit in world ex-China after many years of structural surpluses.
The remarkable improvement is due to the production cuts by ex-China with US, Russia and Europe, which resulted in curtailments at many aluminium smelters. But, The Bank also underlined a fact that China was lagging behind other global aluminium producers. They added that switching focused slightly, the Chinese aluminium industry, which had seen some of the most quick production growth in recent years, had stood somewhat apart from developments in world ex-China.
 
The bank also noted that any output losses could be offset by investing for new, more efficient plant capacity and could keep the better supply in the Chinese aluminium market. Another factor that benefited the market is the warehouse issues on the LME. BofA Merrill Lynch said there would be a gradual improvement as the queues at the warehouse had reduced the incentives for the light metal consumers to tap shares.
 
It said that the forthcoming changes in the LME rules and regulations had made a subtle change in the market. The other factor is the Indonesian ban on raw material export which also includes bauxite. Bauxite is the primary raw material for making aluminium. But, the bank expects any impact on the global aluminium market would be limited.
 
BofA Merrill Lynch forecasted an average price of $1,720/mt in Q3, rising to average $1,900/mt in Q4 of 2014.Three-months aluminium was trading at $1886.50 per metric tonnes on LME during Thursday.

Ncdex launches crude contract with fixed rupee rate

Ncdex launches crude contract with fixed rupee rate

The National Commodity and Derivative Exchange has launched International Brent Crude Oil and Light Sweet Crude Oil futures contracts which will be free of currency fluctuation.
The exchange rate of the currency will be locked in at the launch date of the contract and it will be applicable for the entire tenure of the contract. The final settlement price, anchored to crude contracts of the Intercontinental Exchange (of US), will be based on the currency exchange rate fixed at the contract launch.
The intention matching contract attempts to integrate international price discovery markets with the Indian futures market and eliminate currency distortion to provide a simple and perfect hedge option to domestic companies and value chain participants.
Since contract prices will move in tandem with international prices, the final settlement price will be simple and transparent, said Ncdex in a press statement on Friday.
Samir Shah, Managing Director, Ncdex, said the contract is ideal for small consumers and hedgers who cannot hedge in the Indian commodity market on account of the huge movement in NDF (non-deliverable forward) markets in the evening, which does not reflect the true picture of underlying.
“This unique contract would help oil companies hedge their price risk without distortions created by currency fluctuations. We are, therefore, expecting healthy participation from physical market players,” he said.

Friday, June 20, 2014

Gold Hits $1300, Silver Surges To 3-Month Highs As China Rehypothecation Ponzi Unwinds

But, but, but... Janet Yellen didn't say precious metal valuations were within historical norms? Gold and Silver are surging today (and have done since the FOMC press conference all-clear) with the latter having its best day in months and back at 3-month highs... Intriguingly, just as we warnedgold and silver have been on a significant tear since the Qingdao CCFD probe began (as synthetic hedges are unwound - which dominate pricing in PMs) while copper and iron ore and so on have all fallen (as the reality of no real demand leaks into these commodities).

Gold Hits $1300, Silver Surges To 3-Month Highs As China Rehypothecation Ponzi Unwinds

Is the CCFD unwind having its impact?
Gold Hits $1300, Silver Surges To 3-Month Highs As China Rehypothecation Ponzi Unwinds

As we commented previously:
When we previously contemplated what the end of funding deals (which the PBOC and the China Politburo seems rather set on) may mean for the price of other commodities, we agreed with Goldman that it would be certainly negative. And yet in the case of gold, it just may be that even if China were to dump its physical to some willing 3rd party buyer, its inevitable cover of futures "hedges", i.e. buying gold in the paper market, may not only offset the physical selling, but send the price of gold back to levels seen at the end of 2012 when gold CCFDs really took off in earnest.

In other words, from a purely mechanistical standpoint, the unwind of China's shadow banking system, while negative for all non-precious metals-based commodities, may be just the gift that all those patient gold (and silver) investors have been waiting for.  This of course, excludes the impact of what the bursting of the Chinese credit bubble would do to faith in the globalized, debt-driven status quo. Add that into the picture, and into the future demand for gold, and suddenly things get really exciting.
Here's our previous epxlanation of gold's move... if we are right that somehow China managed to push gold lower via gold CFDsthen the unwind pushes gold higher:
Gold Hits $1300, Silver Surges To 3-Month Highs As China Rehypothecation Ponzi Unwinds

Here's how that might work:
In the gold markets, the paper or synthetic 'demand/supply' dominates pricing as opposed to the non-precious metals which have at least a grain of fundamental sense to them still

Throughout 2012/2013 - as the gold CFDs were booming, Chinese demand for physical gold was soaring as the price plunged (due to the forward hedging required in the CFD transactions which pressured gold swaps/futures lower and thus dominated pricing)

As CFD unwinds hit en masse, these flows must unwind (cover hedges and ensure the underlying physical is there... and if not buy it)

This will pressure gold futures prices higher and because unlike in non-precious commodities where spot markets wag the tail of the futures markets - spot gold will likely be dragged higher also (as we know the demand for the physical has been high).
So unlike in the industrial commodities - where the CCFD unwind drives prices down as the image above shows, thanks to synthetic manipulation and domination of the paper gold (and silver) market, the opposite occurs in PMs.

Who Just Bought Half A Billion Dollars Of Gold Futures?

Who Just Bought Half A Billion Dollars Of Gold Futures?
Presented with little comment aside to note the surge in gold since Yellen gave markets the all-clear yesterday. It seems someone decided the open this morning was an opportune time to take on half a billion dollars of gold exposure...

Gold price on insane surge after massive trade

Gold price on insane surge after massive trade
The gold price scaled $1,300 an ounce for the first time in more than a month, after comments by US Federal Reserve chair Janet Yellen yesterday and a huge buyer lit a fire under traders.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery – the most active contract – jumped to a day high of $1,322.00 an ounce, up $49.30 or nearly 4% from yesterday's close.
After months of subdued trade on gold futures markets volumes surged on Thursday leaping past 210,000 contracts – double recent daily averages – by mid-afternoon.
As the chart shows, after a steady climb throughout the morning, during lunchtime volumes suddenly spiked with more than 2.9 million ounces (82 tonnes) changing hands in three big chunks in the space of 15 minutes.
Gold built on its gains from there to settle at $1,320.40, the the best one day performance for the metal since September last year.
The chart looks almost like the inverse of the trading pattern on April 15 this year when exactly year to the day of 2013's $200 shocker another strange gold price plunge occurred.
Gold's positive move started yesterday after Yellen, speaking at the latest meeting of the Fed's interest rate committee, said she was comfortable interest rates could stay low for a considerable period, which sent the dollar tumbling against the euro and pound sterling.
Gold and the US dollar usually moves in the opposite directions and gold's perceived status as a hedge against inflation is also burnished when central banks flood markets with money.
Monetary expansion, particularly since the financial crisis, has been a massive boon for the gold price. Gold was trading around $830 an ounce when previous chairman Ben Bernanke announced the first program of quantitative easing in November 2008.
After months of subdued trade on gold futures markets volumes surged on Thursday
The QE program together with other stimulus measures saw the balance sheet of the Fed cross the $4 trillion mark in January, up 400% in seven years.
The US has not been alone in printing money and together with the Bank of Japan, the European Central Bank and the Bank of England, more than $15 trillion of easy money is now sloshing around in the system.
Earlier this month the ECB took the unprecedented step of moving rates into negative territory.