Silver, like gold, came under more selling pressure on the back of the speech by Fed chairwoman Janet Yellen at the Jackson Hole conference on Friday. The general interpretation of the speech was that interest rates are still likely to rise during the first quarter of 2015.
Silver has moved down in its trading range. Support is now put in and around the $19.30 to $19.20 level basis spot while overhead resistance has moved down to $20.30 to $20.10 area basis spot.
Silver fell 1.9% last week after falling by 1.3% in the previous week. Silver has lost nearly 10% of its value in the last four weeks if you compare its price to the July high of $21.55.
China’s silver imports fell in July to 97 tonnes, from 107 tonnes in June. Year to date China has imported 912 tonnes of silver, up from 692 tonnes for the same period in 2013.
But although this year’s import figures are ahead of 2013 numbers, the 2014 imports are still well below those levels seen in the period 2010-2012.
Some analysts doubt that China will lift its rate of purchases much, if at all, because China’s silver stocks still remain comfortably sufficient for some time to come.
Seasonally speaking, China usually imports less silver in the second half of the year than in the first half. This has been true since the second half of 2011. Silver imports fall month on month from September through December.
But a sharp fall in the silver price could change all of that. A sharp fall below, say, $19 could bring out lots of buying.
Indian demand for silver in June fell 45% to 323 tonnes versus 579 tonnes for the same month in 2013. A fall in jewellery sales is responsible for the drop in imports and the fall in jewellery sales reflects the below average monsoon rains that India has had.
For the first half of 2014 Indian silver imports are down only 3.3% at 2,882 tonnes versus the first half of 2013. India imported a record 5,819 tonnes of silver last year. But imports this year are likely to be below 5,000 tonnes. But lower silver prices could change that.
Gold has moved down by around $20 per oz in its trading range. The new range looks to be $1,300 to $1,305 per oz basis spot at the top end while support is now likely to be found in and around the $1,260 to $1,250 level.
Sentiment in the gold market has been hit by a combination of strong US economic data and fears that the Federal Reserve will still raise rates during the first quarter of 2015. Gold fell 1.4% last week after falling by 1.0% in the previous week.
On Thursday gold broke below its 200 day moving average at $1,284 and this triggered off both stop loss selling and some resting sell orders. The technical picture for gold is quite weak at present and we could slide all the way below $1,250, especially if there is more evidence about an earlier rate increase.
JPMorgan, the American investment bank, issued a fascinating report last week about gold producers’ costs of production. The report tracks on a quarterly basis cash costs for almost one-third of global gold production and all-in-sustaining costs for approximately one-quarter of global production.
The report found that the 95th percentile of cash costs is currently around $1,100/oz.
But JP Morgan makes the very important point that it believes the actual marginal supplier to the gold market is scrap. Scrap contributes around 30% to total world gold supply.
The bank has observed that sizeable increases in scrap supply will come to the market with a sustained gold price above $1,220/oz.
So we would say that a gold price much below the $1,220 level is unsustainable for very long because the market will lose 30% of its normal supply.
Copper had a dramatic turn round last week on the back of Chinese buying and some short covering plus some fresh CTA and fund buying interest.
The bears seem to be on the run again and the market is now poised to move higher and challenge overhead resistance in and around the $7,210 to $7,230 per tonne level basis three months. Support has moved up and now stands in and around the $6,890 area. Copper rose 3.0% last week after falling by 1.8% in the previous week.
The Chinese physical market remains well supported, with physical copper in Shanghai trading at a 390 yuan premium to the September SHFE contract. The physical market in China has remained tight for the past week, with a 10,300 tonne fall in SHFE inventory last Friday reinforcing that view.
Along with tighter physical markets there has also been an improvement in the SHFE-LME arbitrage which has narrowed to a $76/per tonne loss on Friday morning. On the LME there still remains a dominant holder of copper warrants with one participant in the 80-89% band for both cash and tom warrants.
China imported 360,000 tonnes of copper scrap in July. July’s imports were up 38.5% from June. Over the January-July period, scrap copper imports totalled 2.12 million tonnes, down 12.2% year on year.
China also imported 244,959 tonnes of refined copper in July. This was down 16.07% year on year. Total imports in the seven month period were 2,125,508 tonnes, a rise of 27.92% year on year.
Some commentators thought these figures were overall bearish. But we disagree.
The latest Chinese trade data for July show a continued reduction in refined imports of copper since the highs seen in January, with the fall being attributed to recent scandal in Qingdao and a fall in demand for financing copper.
But we would point out, however, that the reduction is more or less in line with normal seasonal patterns, while a fall in Chinese refined copper exports suggests that any initial panic over Qingdao has subsided.
Looking at the six month moving average, refined imports are levelling off and it instead looks like China is going through a period of digesting refined imports held in bond.
It’s also worth noting that falling Chinese refined imports haven’t been matched with rising LME inventory levels. With SHFE stocks also under pressure over the past few months, it would appear that the refined market in China remains tight and that any fall off in finance-related demand has had only a minimal impact.
Copper scrap imports have meanwhile picked up strongly, with the six month moving average also turning around after a fairly pronounced and price-related downswing.
Scrap may be helping to fill any shortfall in refined availability, which also lends weight to the argument that real Chinese demand is emerging as a factor rather than simply Chinese demand just being a financing game.
To conclude, we think that yet again the outside world has been too bearish about the Chinese economy and its capacity to grow and consume copper and other metals.