Tag Archive for: Commodities

Copper futures finally violated the post-election uptrend yesterday suggesting that some profit-taking will likely occur in the coming sessions. $2.50 should be looked to for initial support in the US futures contract.

Since the unexpected Republican sweep in the US elections, the combination of strong growth expectations and more recently, upbeat Chinese manufacturing  data has spurred an impressive rally in copper futures.

Oil futures got caught up in “risk trading” during the election drama. Energy futures sold off hard with global stocks overnight Tuesday and then surged higher as money poured back into risk assets on Wednesday. That was about the extent of the effect that Trump had on the energy markets at least so far.

Tyler Richey, Co-Editor of the Sevens Report, said “Policy wise, it isn’t exactly clear yet how a Trump administration will affect energy markets, however it is fairly safe to assume that he will be pro-US oil and that could tighten or even reverse the arbitrage spread with the global benchmark Brent contract which trades at a premium to our domestic WTI contract.”

Market focus returned to the bearish fundamentals in the back half of the week once the election drama subsided. Most notably, doubts about OPEC reaching any sort of production deal later this month has become a notable headwind. OPEC members have been successful in jawboning the market higher in recent months but traders are beginning to get skeptical as they are saying one thing (“we are going to cut”) and doing another (pumping at or near record highs).

Additionally, the US fundamental backdrop is bearish as production has stabilized above 8M b/d in the lower 48 as rig counts continue to climb while stockpiles are near all-time highs.

Richey, “Bottom line, the trend in oil prices is currently lower and the fundamentals are decidedly bearish for the medium term, leaving the path of least resistance lower as we approach the end of the year.”

Volatility in the gold market has been extreme this week as the initial flight-to-safety reaction to the election results spurred a huge rally but money flows quickly turned risk-on and gold has since collapsed.

Heading into the election there were a lot of investors piling into gold as a hedge and while that position worked overnight on Tuesday, it has since become a losing bet and you are seeing longs get squeezed out as they cut losses.

Looking ahead, this price action in gold is rather discouraging for the bulls however we are not throwing in the towel on our long call just yet as we still see the risk reward of being long gold here as favorable. On the charts, support holding between $1200 and $1220 is now critical for the health of the relatively young uptrend in gold (technicals turned bullish in April).

Silver has a split personality in that it can trade in sympathy with both the industrials like copper or precious varieties like gold. Over the last few days, silver has outperformed gold as futures rallied in sympathy with the historic squeeze in copper futures in the wake of the election. But, the copper surge is showing signs of exhaustion this morning and the new lows in gold are starting to weigh on the dual-purpose silver contracts.

Since we recommended getting long natural gas on September 21st, futures have rallied more than 17% trough-to-peak and we believe there is still more room to run to the upside in both the near and longer terms.