Just as one might think we are drifting into a bit of an early summer low we see that some commodity markets and precious metals have some alive.Friday was a day for spot Silver passing US $30 and this morning we see that Copper has also been on a bit of a tear.

BREAKING: *COPPER PRICES HIT A NEW RECORD HIGH ( Investing.com)

So let us take a look.

Copper 

Javier Blas of Bloomberg takes up the story.

Undeniably, the market is red hot. At the London Metal Exchange, benchmark copper prices surged on Monday to a nominal high above $11,000 a metric ton, surpassing the previous peak of $10,850 set in 2022. In New York, prices surged even higher as a cluster of financial conditions, rather than fundamentals, engulfed the market.

So its getting hot in here as Nelly would say. For those like me who follow it in futures terms it has broken above US $5 to US $5.07 as I type this. It was not that many years ago that US $2 or below was considered bad/deflationary and above US $3 inflationary/good. So we have a clear change.

One factor in play here comes via a type of science lesson from Javier Blas.

When Thomas Edison wired his own house in Menlo Park, then a tiny village in New Jersey, he fabricated a primitive cable. As insulation he chose a mix of asphalt, linseed oil and beeswax; for the core, copper wire. Why? The metal is the second-best conductor, only behind the much more expensive silver.

Interesting that Silver gets a mention here. But we can note rather an irony as something which was supposed to produce cheap power is inflating prices again.

Now, as the energy transition aims to electrify everything, from driving to heating, copper will be everywhere too…..The slogan is simple: In the climate-change era, copper is the new oil — a critical mineral essential to rewire our energy system with renewable power.

Continuing the analysis there are arguments demand will surge.

The uber-bull argument looks beyond present demand weakness into a future when, by the rosiest estimates, refined copper consumption doubles from about 25 million tons now to 50 million by 2035.

Just as supply has been struggling.

With mining companies announcing big downgrades in their supply forecasts for the year and inventories at low levels, the momentum is there for even higher prices. Goldman Sachs Group Inc. told investors recently that “copper’s time is now.”

Being told anything by Goldman Sachs makes me nervous as they have a habit of treating their own clients as “Muppets”. A higher price will focus minds on alternatives.

Copper is the best affordable electricity conductor, but aluminum, which costs about $2,600 a ton, can replace it — and is already — in some applications.

Although, of course there is a danger that the aluminium price then ramps. Also whilst I am dubious about the overall comparison with oil, just like with it people will look harder for new  deposits and sources of supply at the new higher price.

 Old-fashioned exploration, followed by building mines from scratch, does. But there’s plenty of copper to be found now, given the price incentive. The Democratic Republic of Congo is an obvious place. Yet other regions in Africa offer opportunities.

One thing also giving food for thought here is the way that China has been moving into Africa over the past decade or so. There is a clear risk that the West has been caught napping again. This is symbolised in a way by the US military leaving Niger in what under President Biden is an increasingly long list of foreign policy reverses. Not quite what “the adults are back in the room” of the mainstream media assured us. But for our purposes today we seem to be losing influence in Africa.

Hi Ho Silver Lining

I used to work with someone who was keen on Silver trading and the rumour was that the lines on his paper charts could turn blood red if things got rough. This was quite some time ago when Silver was pinned around US $5 by demand on one side and Solver loans on the other. Now we see a very different situation.

Shanghai #silver hits an 8% limit-up on Monday morning ( CN Wire)

So we have another China link. As to the bull case then we see some of it below.

#Silver is a metal with many amazing properties. It’s both the most reflective and conductive metal on earth! It’s also naturally anti-microbial, which is why the pioneers would drop a silver coin inside their water barrels to kill bacteria. With all these useful properties, it’s no wonder that silver is widely used in so many industries. ( @cdnstocktrader)

Whilst that is true it is also true that this is hardly new news. There have also been shortages.

To add insult to injury, silver production has dropped in recent years because the price was so low. For three consecutive years now, there has been a world-wide silver deficit. For 2021, 2022 and 2023 the deficits (in millions of ounces) were 51.1, 263.5 and 184.3 respectively. (@cdnstocktrader )

Oh and from the same source the energy transition pops up.

Every new EV battery produced contains between 25-50 grams (approx. 1 – 1.5 ounces) of silver………Maybe the biggest industrial use for silver is in solar panels, which have been responsible for a significant portion of the growth in annual silver demand. What’s more is that the newest solar panel technology requires substantially more silver than old technology, so even if demand for solar panels wanes, this will keep demand for silver high.

The issue with some the analysis comes if you ask the question why now? Silver has been higher in price over the period of shortage/deficit so there is logic in that. But why on the last couple of trading days? There we get to market behaviour in my opinion.

Gold

Whilst it is not the headliner this morning we have in 2024 been seeing a succession of higher prices for Gold.

GOLD PRICES HIT FRESH RECORD HIGH AT $2,454.10/OZ ( investing.com)

That will be better in currencies which have been in a weak run of which the Japanese Yen comes immediately to mind. Of course both China and India love Gold and the latter has been a good hedge against Rupee falls. Indeed we see a feedback loop in the sense that investing in precious metals works rather well if you expect a weak currency which tends to weaken it. This maybe a marginal factor but it can be in play.

Anyway let me hand you over to a hero for some and for others a bit like hearing Dracula’s coffin lid creak open.

The precious metals rally continues in early asian trading. #Gold is up $22, hitting a new all-time record high above $2,437. #Silver is up 50 cents, trading above $32.  ( Peter Schiff)

Comment

If we switch to my arena of the financial world there are factors in play. For example concerns about the US debt and deficit which is an question I look at in the podcast linked below. Plus there is the ongoing march of plans for central bank digital coins or CBDCs which are a preparation for interest-rates to go even more negative in the next crisis. After all crises are happening more often.

Also there is the reality that at any time when they sniff fear hedge funds will be singing along with Elvis Costello.

Pump it up until you can feel it.
Pump it up when you don’t really need it.

Those short in these markets will be squeezed hard which puts them under more pressure until it is over.

Podcast