Summary

The market's response to Jerome Powell's dovish remarks at the JH meeting on Friday was relatively positive. The September rate cut is already a done deal, but whether the rate cut will necessarily lead to a corresponding new uptrend in prices is probably not a particularly linear process. The economic data after this may be more important, as it directly relates to the economic impact of the rate cut. Of course, overall, we still believe it is beneficial for prices.

Key Takeaways

1. Last week, gold and copper fluctuated at high levels.

In terms of precious metals, last week, COMEX gold rose slightly by 0.1% and silver rose by 2.66%; Shanghai gold 2410 contract rose slightly by 0.85%, and Shanghai silver 2412 contract continued to rise by 2.84%. Among major industrial metal prices, COMEX copper and Shanghai copper changed by +1.31% and -0.65% respectively.

2. How strong is the FED PIVOT support for copper prices?

The market's response to Jerome Powell's dovish remarks at the JH meeting on Friday was relatively positive. Copper prices rebounded significantly during the speech and recovered Thursday's decline. The September rate cut is already a done deal, but whether the rate cut will necessarily lead to a corresponding new uptrend in prices is probably not a particularly linear process. The economic data after this may be more important, as it directly relates to the economic impact of the rate cut. Of course, overall, we still believe it is beneficial for prices.

3. Gold prices are still expected to run relatively strong.

After reaching a historical high in the previous period, the gold price consolidated at a high level. This week, it was influenced by Powell's dovish remarks at the JH meeting and various economic data indicating expectations of a soft landing in the USA. In addition, the minutes of the Fed's FOMC meeting showed that many officials supported rate cuts, which strengthened the gold price. The expectation of rate cuts and escalating geopolitical crises support the gold price at a high level. However, while it remains at a historical high, we still need to wait for the next upward driver. With high positions, there may be slight obstacles on the path of the gold price's rise.

Review of basic metal market.

(1) Observation of COMEX/SHFE copper markets.

Last week, COMEX copper price oscillated at a high level without a clear direction. However, market reactions to Powell's dovish remarks at the JH meeting on Friday were relatively positive. The copper price rebounded significantly during the speech and recovered from the decline on Thursday. It is now certain that a rate cut will be implemented in September, but whether a rate cut will necessarily lead to a new increase in prices is not a particularly linear process. The economic data after this may be more important, as it directly affects the economic response to rate cuts. Of course, overall, we still believe that it is beneficial for prices.

Last week, SHFE copper price showed consolidation, basically running around the 73000 yuan/ton level. The domestic fundamentals are still developing in a positive direction, with increasing risks of supply-side production cuts and obvious improvements in demand compared to the first half of the year. The reduction of inventories is evident. However, apart from destocking in China, the destocking of inventories in other regions of Asia needs to be observed before providing a more solid foundation for the rise. However, we believe that this is highly probable.

In terms of term structure, the COMEX copper price curve has shifted upwards in the previous period, and the price curve still maintains a contango structure. COMEX copper inventories continued to accumulate last week, and currently, they have increased to a total of around 0.03 million tons, an increase of 0.02 million tons. According to market news, there will be delivery in the future, and it is expected that the price spread structure will still maintain a contango structure.

The SHFE copper price curve has not changed significantly compared to before, and the price curve maintains a contango structure, but it has started to converge. Recently, there has been a noticeable improvement in consumption after the decline, and the destocking situation looks very good in August, with reasons to believe that it will continue until October. Therefore, we believe that if we look further ahead, there can still be some opportunities to expect in the spread in the future.

In terms of positions, according to CFTC positions, non-commercial long positions rebounded from a low level last week, matching the rebound in prices. It is expected that after the rate cut is implemented, the game between the long and short sides will become more significant.

Last week, the prices of precious metals and copper fluctuated.

Last week, the TC index for copper concentrate was $6.8 per dry metric ton, remaining unchanged from the previous week. The spot market for copper concentrate remains stable, with poor market trading sentiment and tepid market transactions. Mine bidding in the fourth quarter concluded at high single-digit levels, with some refineries already completing orders for the fourth quarter. The supply side is temporarily stable, while the demand side is mainly in a wait-and-see mode. Market participants generally believe that the upside for spot TC in the fourth quarter is limited.

In terms of spot market, copper prices fluctuated narrowly in the range of 73,000 to 74,300 yuan per ton during the week. Some downstream processing companies showed poor performance in new orders this week, resulting in a decline in daily procurement demand compared to the previous week. At the same time, there is still a certain bearish sentiment in the market's outlook, leading to an overall weakening of market consumption. The warehouse outflow in the Shanghai market also decreased. According to the survey, the next week's increase in imported copper into the domestic market is expected to rise. Meanwhile, as the month-end approaches, some processing companies are facing funding pressures, making it difficult for procurement demand to significantly increase. Market consumption is expected to increase only slightly, leading to a continued pressure on premiums. However, considering the continuous decrease in Shanghai market inventory in recent days, along with the recent narrowing of the contango in the monthly contract, showing a shift in structure to a backwardation trend, some traders still hold a certain pricing sentiment. Therefore, the downward space for spot premiums is also limited, and next week's performance is expected to be in the range of a premium resistance of 50 yuan to a discount of 50 yuan per ton.

The domestic market's inventory of electrolytic copper in spot deliveries is 0.2829 million tons, a decrease of 0.0151 million tons from the 15th, and a decrease of 0.0036 million tons from the 19th. This week, the inventory in the Shanghai market continued to decline, but the rate of decrease has narrowed. The main reason is the strong and narrow fluctuation of copper prices during the week, leading to a decline in downstream procurement and delivery demand. However, both imported copper and domestically produced deliveries to the warehouse are limited, and therefore the rate of decrease is not as significant as before. The inventory in the Guangdong market decreased slightly, despite some arrivals in the market during the week. At the same time, downstream consumption is still acceptable, resulting in outbound warehouse quantities exceeding inbound, thereby continuing the decrease of the inventory. The accumulated inventory of electrolytic copper in the bonded areas of Shanghai and Guangdong was 0.0687 million tons, a decrease of 0.0013 million tons from the 15th, and a decrease of 0.0003 million tons from the 19th. The inventory in the bonded areas decreased slightly, with no significant improvement in import price comparisons in the Shanghai market during the week. The clearance quantity into the bonded area warehouse is limited, and the same is true for the inbound of imported goods into the warehouse upon arrival at the port. As a result, the inventory decreased slightly. However, the bonded areas in the Guangdong market imported some goods as well as domestic exports, resulting in an increase in inventory.

The processing fees for 8mm refined copper rods in various mainstream markets domestically have experienced significant fallbacks, with the most notable decline in the South China market. As copper prices oscillate and trend upward, actual orders for refined copper rods continue to show lackluster performance. There is a clear concentration of orders for recycled copper rods, and some markets have seen a slight rebound in operating rates. The price spread between refined and waste rods, as well as the discount to future copper, has slightly narrowed, indicating a significant differentiation in market transactions. Overall, the recent rise in copper prices has limited the overall increase in trading in the refined copper rod market. In addition, the lack of a notable stimulus in downstream demand suggests that if copper prices continue to rise, the short-term pickup in downstream delivery demand may be limited. Looking at the actual market operations and future plans, the current operating conditions of enterprises in Hubei, Anhui, and Henan are acceptable. Along with recent adjustments and changes in industry policies, as well as the diversity of raw material supplies, there is an expected increase in future output of recycled copper rods.

Review of the precious metals market

(1) Observations on the precious metals market

Last week, COMEX gold and silver fluctuated narrowly, operating within the range of $2506-2570 per ounce and $28.8-30.1 per ounce, respectively. Gold prices consolidated at high levels after reaching a historical high in the previous period, supported by dovish statements from Powell at the JH meeting and various economic data indicating an enhanced expectation of a soft landing in the USA. In addition, the minutes of the FOMC meeting showed support for rate cuts from multiple officials, which provided further support for gold prices.

(2) Ratio and Volatility

Last week, gold fluctuated and fell, while silver fluctuated and rose, and the gold-silver ratio continued to decrease. Copper prices fluctuated and rose, while the gold-copper ratio continued to decline. The crude oil price fluctuated and fell more than gold, and the gold-oil ratio rose compared to the previous period.

(III) Inventory and Holding Positions

In terms of inventory, last week's COMEX gold inventory was 17.26 million ounces, a decrease of about 0.237 million ounces compared to the previous period. The COMEX silver inventory was about 307.33 million ounces, a decrease of about 0.591 million ounces compared to the previous period. The SHFE gold inventory was about 11.8 tons, an increase of 0.02 tons compared to the previous period, and the SHFE silver inventory was about 913 tons, a decrease of about 24.2 tons compared to the previous period.

In terms of positions, the SPDR Gold ETF position increased by 1.2 tons to 856 tons compared to the previous period, and the SLV Silver ETF position increased by 14.2 tons to 14,490 tons compared to the previous period. Last week, the non-commercial total positions in COMEX gold were 0.42 million contracts, among which non-commercial net long positions increased by 26,782 contracts to 0.356 million contracts, and short positions increased by 2,793 contracts to 0.064 million contracts. Non-commercial long positions dominated, with the proportion rising to around 66.7% compared to the previous week, while non-commercial short positions fell to around 12.1%.

Market outlook

At present, the domestic fundamentals are still developing in a positive direction. The risk of supply-side production reduction has increased, and the demand side has also shown significant improvement compared to the first half of the year, as evidenced by the extent of destocking. However, in addition to destocking in China, we still need to see destocking of inventory in other regions of Asia to provide a more solid foundation for an upward trend, and we believe this is likely.

Expectations of interest rate cuts and escalating geopolitical risks support the maintenance of high gold prices. However, as gold prices are at historical highs, we still need to wait for further drivers for an upward movement. With high positions, the upward path of gold prices may encounter some obstacles.

Focus and risk warning

Initial jobless claims, second quarter GDP, core PCE, etc. in the United States.