Copper has traded higher both today and yesterday primarily as a result of weakness in the US Dollar. A continued decline in inventories monitored by the London Metal Exchange is also buoying the market. Inventories have declined for 10 straight days. On March 2nd, inventories had reached the highest level since 2004. The Commitment of Traders report shows that commercial short positions and open interest have declined materially since the market’s first shot at 350. Open Interest is down from roughly 160K contracts to 128K contracts while commercial short positions are roughly half the amount of the total at January’s peak. The market continues to struggle with weekly resistance at 340. Again, it is important to watch how the market closes the week. A close above 340 would indicate confidence, as market participants are willing to hold long positions at 340 into the weekend. On the daily chart 345 is resistance. The inability of the market to close above 340 isn’t necessarily bearish. Tight consolidation allows the market to sustain an eventual move in either direction. The short-term outlook is healthy as long as Copper holds above 330. A weekly break above 340 should propel the market to and slightly beyond January’s high.
Last week we noted: “Last week our analysis proved correct, as Platinum was able to hit 1600. Assuming it can hold above 1600 into the weekend, then we’d be anticipating a retest of 1650.” The market did close last week above 1600 and now we are seeing follow through to the upside. The market is higher in overseas trade (today is Wednesday) trading at 1635 as we pen this. A move to 1650 looks very probable. Platinum has already broken above its January high when graphed against Commodities, the Euro and the British Pound. We noted relative strength in a past commentary and we are seeing it with Platinum. It is the current leader in the metals group. A long-term chart shows that 1500 is now strong support with 1600 likely to become a support point. The next long-term resistance point is 1800. Fundamentally speaking, the weakness in the US$ is providing short-term support as is the reemergence of the “risk trade.” There is some good news in the microeconomic sense. The European Automobile Manufactures Association reported that new car registrations rose 3% in February. This was led by the UK, Spain and Italy. In an example of how the credit crunch can be bullish for demand sensitive commodities, we note that state-owned South African producer Eskom Holdings is struggling to fund a $62 billion expansion, which is necessary to meet rising demand. South Africa produces 75% of the worlds platinum.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.