Precious and industrial metals are in extending mode of their recent or even all-time highs so far in 2021, on the back of a commodity super-cycle optimism. Base metal prices have continued to surge to fresh trend highs. Oil prices are off recent highs, with the market being affected by the Covid situation in India (which is among the world’s biggest imports of oil), but the bigger-picture market prognosis remains bullish given the success of vaccinations and ramping up supply capacity for vaccine production. As explained in March, the overall outlook of industrial metals e.g. Copper is set to enjoy an even bigger rise in demand because of the transition away from fossil fuels, similarly to Palladium which is also a necessary component of electric vehicles engines. In the meantime, the reflation trade story also supported and keeps supporting Copper amid the hopes of reopening of the global economy, and hence the rising demand is not solely from China but further regions.
Hence that said, the overall outlook remains supported by the above, however this week’s skyrocket seen in Copper, Platinum, Palladium, Gold and Silver supported not solely by the weaker US Dollar but also by reopening optimism and hope of large-scale infrastructure spending in both US and China.
Even thought markets were blindsided by the jobs data on Friday 7th May, focused too much on burgeoning demand while taking their eye off the gaping pandemic-era supply side anomaly in the labour market; that is, the difficulty businesses are having in recruiting workers, with millions who normally work in low paid service sector jobs finding their incomes are better on unemployment benefits than working in their previous jobs. By way of illustration of prevailing realities, one McDonald’s restaurant in Florida has been offering $50 for anyone who just turns up for an interview. Child care has reportedly been particularly hard to come by, too, contributing to the curtailment in labour supply. Other factors at play include labour market skills have in some areas degenerated as a consequence of prolonged absence from work. The fact is, the pandemic emergency benefits will have to expire before the supply side issues can be rectified — so not, in a full sense, until after the summer given that the Pandemic Emergency Unemployment Compensation program was extended to September 6.
All this means is that prospects for a strong rebound in the US economy remains on track, but it will take longer to achieve as a consequence of the ironic drag of pandemic support measures, while the demand/supply imbalance will have an inflationary effect, which is largely why longer-dated treasury yields have more than unwound the steep declines that were seen in the immediate wake of the payrolls release on Friday and why metal market found further bid.
Meanwhile as reported by ING news, China has been key to the broad-based rally seen across the metals complex, with its post-Covid stimulus boosting infrastructure projects, and in turn boosting demand for metals. However, it’s not just China where we are seeing a recovery, global demand is making a return as more economies reopen, and downstream sectors restock following the pandemic-induced lockdowns. US plans for a large infrastructure spend have only provided further support to markets, with investment planned to go towards electric vehicle infrastructure, power grids, as well as roads and bridges.
In addition, a group of 15 key copper smelters in China has agreed to cut purchases of raw material copper concentrate in 2021 by 8.8% on the year, state-backed research house Antaike said, in a bid to boost flagging treatment and refining charges.
Copper broke previous record highs at 4.65, GoldPlatinum opened the week above 3-months highs echoing its bullish momentum after consolidating in April with 1250 be a key resistance area.
The asset presents an increasing positive bias with 50-day SMA providing key support as it points higher, Bollingers are extending northwards. The oscillators are indicating that positive momentum is gathering gains, endorsing price’s fresh upward drive, as MACD is strengthening above its signal line in the positive area, while the RSI is navigating towards the 70 level. If the commodity sustains bullish bias, the next Resistance area to be seen is at 2021 highs at 1337 highs.
If sellers gain the control, only a sharp sell off below 1200 could turn the overall positive outlook into doubt .
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Andria Pichidi
Market Analyst
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