Bank of China Commodity Weekly report: Lun Copper rushes higher and falls back to rise in spot prices of Precious Metals in London

Content summary

Spot prices of precious metals rose in London, with the Lunkin operating range at $17955,1815, close to the previous high of more than eight years. Gold buying was boosted by factors that dominated the market last week, including a new global crown epidemic, weaker economic data and a weaker dollar index. From the price trend, gold price upward breakthrough momentum has slowed down, the market may be looking for new rising factors, the meso-market level reflects the mentality of investors, global gold ETF position growth has been decelerating. Looking forward to the trend of gold prices, we maintain a relatively optimistic view on the trend of gold prices in the medium and long term, but focus on the risk of pullback in the short term.

Base metals fell back mainly, a number of LME base metal prices hit phased highs in intraday, global geopolitical tensions superimposed market risk sentiment turned into the main driver of base metals last week. Lun copper rose and fell, affected by macro market sentiment and supply side, and the bilateral fluctuation of copper price increased significantly. Two copper mines in Chile on the supply side plan to strike, stimulating copper prices to strengthen sharply in the first two trading days; domestic measures to stimulate consumption on the demand side have been introduced one after another, and downstream demand is expected to continue to release. With the gradual improvement in demand, inventories in the three major exchanges continue to decline, domestic copper stocks have dropped significantly, and spot stocks are still relatively tight. At present, the upstream supply of the copper market is expected to gradually recover, but there are many uncertainties in the macro aspect, and the copper market continues to face resistance.

International oil prices continue to fluctuate in a narrow range. OPEC+ decided to prevent loosening and cut production from August, and believes that the recovery in demand and compensated production cuts will offset a considerable portion of the increased production, and the loosening cuts will not affect the rebound in oil prices. The recovery in U. S. economic data also partly supported oil prices, but the spread of the epidemic hit optimism in the market. The long-term rising water of crude oil continues to fall, and the curve is obviously flattened. Short-term oil prices will fall in the $40-$45 range, but uncertainty increases in the medium term.

Precious metal market

Gold buying was boosted by factors that dominated the market last week, including a new global crown epidemic, weaker economic data and a weaker dollar index. First, the situation of prevention and control of the global new crown epidemic is grim. the number of new crown cases in the United States has exceeded 3.6 million (the number of new cases in a single day is the second highest in history). Countries such as Brazil and India are still the storm centers of the epidemic, with the cumulative number of cases in the world exceeding 14 million. It is now summer in the northern hemisphere, but the epidemic has not yet been effectively controlled, and the market is more worried about the risk of a "second epidemic" after entering autumn and winter. It also puts pressure on major countries, including developed countries, to expand fiscal stimulus. Second, China's second-quarter GDP data performed well, higher than market expectations, indicating that the economy is recovering from the first quarter, while in other parts of China, US economic data are mixed, with retail sales rising 7.5% month-on-month in June, but the initial consumer confidence index of the University of Michigan fell unexpectedly in July, and given the current epidemic, the outlook for the US economy remains bleak. Third, investors are optimistic about the agreement reached at the EU leaders' summit on the recovery fund. Last week, EURUSD rose from 1.13 to 1.1430, pushing down the dollar index from 96.7 to 96, which is also positive for gold.

Although the overall macro environment is bullish on gold, but from the price trend, the upward breakthrough momentum of gold prices has slowed down, the market may be looking for new rising factors, the meso-market level reflects this mentality of investors. On the one hand, the growth of global gold ETF positions is already decelerating. According to Rufter, gold ETF positions rose by 307t in the first quarter and 435t in the second quarter, with the highest growth in the first six months. The total position now exceeds 3580 tons, which is more than 30 per cent higher than the peak of the previous bull market. As a result, gold ETF investment in the first half of the year has become the main factor driving gold prices up. But gold ETF investment activity has slowed since late June, with a weekly increase of about 21 tonnes last week. On the other hand, CME gold position data, which reflects speculators' mindset, showed that net long positions in CME gold futures and options held by Managed Money, the management fund, fell to 177000 contracts as of July 14, reversing a continuous rally since mid-June and is now equivalent to a high of 62 per cent at the end of February.

From the perspective of the precious metal physical market, the epidemic has changed the global physical trade flow, affecting the cross-market, cross-specification market price difference. In the case of gold, physical demand in Asia is weak, epidemic prevention and control and high gold prices have depressed physical gold consumption, while markets in Europe and the United States have benefited from ETF investment demand, while markets such as Switzerland, Australia and Singapore export large amounts of gold to the United States. In the case of silver, demand in traditional consumer markets such as India and Southeast Asia is weak, and silver tends to flow to European end markets.

Looking forward to the trend of gold prices, maintaining a relatively optimistic view on the medium-and long-term trend of gold prices, but focusing on the risk of callback in the short term, on the one hand, the above-mentioned gold ETF investment and CME gold positions, and on the other hand, from a technical point of view, RSI indicators on the weekly chart show that they are approaching overbought, and if gold prices are unable to break through for a long time, and lack of new bullish factors, they may face downward pressure, with a support level of 1780 below.

Basic metal market

Last week, base metals fell back mainly, a number of LME base metal prices hit a phased high in intraday trading. Among them, Lun copper fell back, rising to a high of $6633 at one point, then falling sharply above $6300 to close at $6448, with a weekly amplitude of more than 5 per cent. With the exception of Lunxi, all the other metals fell slightly.

At the macro level, global geopolitical tensions superimposed market risk sentiment shift became the main driver of base metals last week. Global geopolitical tensions have raised investor concerns about the prospects for an economic recovery, risk aversion has risen and the prices of most risky assets, including stocks, crude oil and metals, have fallen. In addition, in terms of the epidemic, the surge in the number of new crown cases in the United States has aroused market concern. From the data in figure 3, we can see that the early release of the seal by the US government has made the early prevention and control results fall short of success. Before the vaccine is developed, whether it is strengthening epidemic prevention or passive anti-epidemic, the current complex global epidemic situation may have a new round of impact on the pace of economic recovery. Economic data from many countries were generally good last week, with retail sales data in the United States in June and GDP data in China in the second quarter exceeding expectations, but the market did not get a boost. Although the economy is still gradually recovering, the risk of a second epidemic, geopolitical uncertainty, trade instability and other "gray rhinos" are gradually emerging, and risky assets such as non-ferrous metals are facing the possibility of impact. From a long-term perspective, global monetary easing superimposes a large amount of government financial input, which plays a significant role in promoting the price of non-ferrous metals. On the whole, the macro multi-empty news is intertwined, and the risk of bilateral fluctuations in non-ferrous metal prices increases.

[copper]

Last week, copper rushes high and falls back, hitting its highest level since June 2018 in intraday trading. Lun Copper is affected by macro market sentiment and supply side, and the bilateral volatility is significantly intensified.

On the supply side, two Chilean copper mines plan to strike because of wage issues, and the two copper mines have a combined annual copper production of nearly 400000 tons. Copper prices strengthened sharply in the first two trading days last week, and the government is now involved in mediation. If no agreement can be reached, a strike is expected this week, which may support copper prices. In addition, copper supply-side concerns are gradually dissipating, Chile's current copper mine has no further restrictions on control measures, the local government even said that in view of the "slight improvement" in the epidemic situation, will relax epidemic prevention measures in some areas, while Codelco said the number of new cases per day at the mine has dropped by about 66% compared with mid-June. The Peruvian government expects that the country's mines will fully resume work soon, and the resumption rate is expected to reach 90% Rue 100% from the end of this month to the beginning of next month. The planned suspension of production at Glencore's Mopani copper mine has been rejected by the Zambian government, demanding continued operation to support the economy. In the medium to long term, copper supply is gradually recovering.

On the demand side, domestic measures to stimulate consumption have been introduced one after another, and downstream demand is expected to continue to be released. Last week, the three ministries jointly released activities for new energy vehicles to the countryside in the second half of this year, while new energy indicators in Beijing and other places increased their quota in August. With the introduction of relevant industrial support policies, the demand for copper, aluminum, nickel and other non-ferrous metals is expected to continue to be boosted.

In terms of inventory, with the gradual improvement in demand, inventories in the three major exchanges continue to decline, domestic copper stocks have dropped significantly, and spot stocks are still relatively tight. The Yangshan copper premium, which reflects the supply and demand situation of the port, remains within the range of US $80,000,000, which is relatively stable. In terms of term structure, the LME copper curve has changed greatly this week, the cash-3m curve has changed from the previous back structure to the contango structure, and the distal back form of 3m-2021 has also dropped sharply, with the accelerated inflow of overseas copper concentrate, the operating rate of domestic smelters has further increased, and the spot tension has been alleviated, and it is expected that the copper curve tends to restore contango shape.

In terms of investor sentiment, net non-commercial positions in CMX Copper CFTC continued to increase, but copper prices have now deviated. In addition, the volatility of the options market shows that the 3-month volatility curve deviates to the left side of the put end, and option investors are strongly bearish.

Looking forward to the future, considering that the upstream supply of the copper market is expected to gradually recover, and there are many uncertainties in the macro aspect, the copper market continues to face resistance. From a graphic point of view, Lun copper broke through the curve last week to run on the track, RSI appeared overbought signal, quickly fell back, in the short term, MACD dead fork is imminent, Lun copper prices or shock callback, the lower support level 6200 (Bollinger belt middle rail); in the long term, taking into account the rising shape is not destroyed, and 50-day and 200-day moving average appears gold fork, medium-and long-term Lun copper still has upward momentum.

Energy market

The performance of international oil prices was mediocre last week, and the futures prices of the two major crude oil were little changed compared with a week ago. With the surge in new crown pneumonia cases in some countries, there is a growing uncertainty about the recovery in global fuel demand, while major oil-producing countries are preparing to relax production restrictions. Brent crude settled at $43.14 a barrel on Friday; WTI crude settled at $40.59 a barrel on Friday.

OPEC believes it can start loosening production cuts in August without affecting the rebound in oil prices, as recovery in demand plus compensated production cuts will offset much of the increase. At the OPEC+ Joint Ministerial Committee held on July 15, the OPEC+ representative said that the OPEC+ group agreed in principle to reduce the production reduction quota in August, which brought the oil price down to the $40 mark at one point. However, the Saudi energy minister said the production cuts would actually exceed 7.7 million barrels a day, as countries that exceeded quotas in May and June had agreed to additional production cuts in the third quarter. In the first two months after the agreement, 13 countries exceeded their quotas by a total of 840000 b / d, according to the OPEC+ document, which would offset nearly half of OPEC+ 's upcoming increase of 2 million b / d if all production cuts were compensated. OPEC+ believes that most of the new production will be offset by production cuts and a rebound in demand, and OPEC+ had previously predicted that there would be a supply gap in the second half of the year, which boosted the market's optimistic expectations.

The recovery in U. S. economic data also partly supported oil prices, but the spread of the epidemic hit optimism in the market. Us business activity rebounded in early July as states relaxed restrictions to control the spread of the epidemic, according to a beige book released by the Federal Reserve on Wednesday. Meanwhile, US manufacturing output rose at its fastest pace since 1947 in June, according to US economic data released on Wednesday, as motor vehicle production accelerated as companies resumed work and production. Although US retail sales rose 7.5 per cent in June from a month earlier, the May figure was revised up to a record 18.2 per cent. But the decline in initial jobless claims has been limited, and 32 million Americans are still receiving unemployment benefits, highlighting the easing of the job market recovery, which makes the market sceptical about the sustainability of the consumer recovery as unemployment benefits expire. The recent surge in infections in the United States, especially in the densely populated southern and western regions, has prompted some states in these areas to either close businesses again or suspend restarts. Compared with the initial partial rebound, the pace of manufacturing recovery will be much slower and the uncertainty related to the epidemic will rise again, increasing the significant downside risks posed by plummeting demand, supply chain disruptions and increased economic uncertainty.

In terms of term structure, the long-term rising water of crude oil continues to fall, and the curve is obviously flattened. On Friday, the September 2020 contract rose just 16 cents a barrel from the August contract, indicating a further recovery in US crude oil demand. WTI and Brent are likely to switch to forward discounts in the second half of the year.

In terms of inventory data, the data released by the US EIA show that except for the strategic reserve, the commercial crude oil inventory of the United States decreased significantly more than expected, and the refined oil inventory and gasoline inventory decreased significantly in the week ending July 10. Specific data show that the United States as of July 10 week EIA crude oil inventory changes actually announced a reduction of 7.493 million barrels, is expected to decrease by 88000 barrels, the previous value increased by 5.654 million barrels. In addition, in the week ending July 10, EIA gasoline stocks in the United States actually reported a decrease of 3.147 million barrels, expected to decrease by 1.08 million barrels, and the previous value decreased by 4.839 million barrels; in the United States, EIA refinery stocks actually reported a decrease of 453000 barrels, expected to increase by 1.384 million barrels, and the previous value increased by 3.135 million barrels. The reduction in inventories of crude oil and oil products is undoubtedly a shot in the arm for oil prices, but whether the trend can continue needs to be verified by data over the next few weeks.

As far as the current market is concerned, short-term oil prices will be in the range of $40 to $45, but uncertainty will increase in the medium term. As demand recovers, OPEC will gradually increase production, which is likely to keep crude oil in the current range of $40 to $45. The prospect of a further recovery in the global economy in the second half of the year and further pressure on the dollar index will add to the trend of oil prices, but the outlook for the epidemic remains uncertain and inventories could soar again. The risks cannot be underestimated. Therefore, we still need to pay attention to the epidemic and the performance of economic data in the near future, and if there are signs that economic data have been affected by the secondary spread of the epidemic, it may reignite concerns about the recovery of demand.

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