Copper / Silver / Gold News

“Despite record demand from the official sector in the last two years, coupled with climbing gold prices, many reserve managers still maintain their enthusiasm for gold,” Shaokai Fan, WGC head of central banks sector, said in a statement.

The survey, which was conducted in February-April and included a total of 69 responses, showed that 29% of central banks expected their own gold reserves to increase in the next 12 months.

This is the highest level since the WGC, an industry body whose members are global gold miners, began the survey in 2018 and compares with 24% in 2023.

The WGC said 81% of respondents expected global central bank gold reserves to increase over the next 12 months compared with 71% a year ago.

While in prior years, gold’s “historical position” was the top reason for central banks to hold gold, this factor dropped to fifth among WGC survey responses this year.

The top reasons given for the increases now are “long-term store of value or inflation hedge,” “performance during times of crisis” and “effective portfolio diversifier.”

Some 41% of 58 respondents listed domestic storage as the vaults where their gold reserves are kept, compared with 35% in 2023. However, the Bank of England remains the most popular location listed in 55% of the responses.

Among 57 respondents, 15% said they planned to change custody arrangements for their gold in some way in the next year compared with 6% in 2023. This includes diversifying the overseas storage as well as an increase or decrease of the domestic storage.

(By Polina Devitt; Editing by Bill Berkrot)

Banks, miners and investment funds have been touting copper’s bright long-term prospects for months, and a flood of investment into the market over the past few weeks has piled pressure on bearish traders who’ve taken a more cautious stance owing to weak spot demand, particularly in China.

Several developments in 2024 have emboldened copper bulls and drawn in a rising tide of speculative money. Tight supply of copper ore fueled talk of output cuts by smelters, and investors are betting that surging usage in fast-growing sectors including EVs, renewable energy and artificial intelligence will offset the drag from traditional sectors like construction.

Prices started to take off in early April, and last week the rally went into overdrive as a short squeeze on the New York futures market triggered a global rush to secure the metal.

“That has taken prices to another level and it’s very difficult to call a top in this environment,” Craig Lang, principal analyst at researcher CRU Group, said by phone from Singapore. “Commodities markets do tend to overshoot.”

Investors, traders and mining executives have warned for years that the world faced a critical shortfall of copper amid ballooning demand in green industries. Jeff Currie, commodities veteran and the chief strategy officer of the energy pathways team at Carlyle Group Inc., said last week that copper was the best long trade he has ever seen.

However, many participants in the physical trade have warned that copper prices were running ahead of reality. Demand remains relatively tepid — especially in top buyer China, where inventory levels remain high and suppliers of copper wires and bars have been cutting output. Chinese demand is so subdued that smelters have been racing to export copper as prices in New York and London have shot ahead of prevailing prices in the domestic market.

But the disconnect has continued to grow as investors flocked to western exchanges and bearish traders rushed to buy back short positions.

Copper’s rapid ascent to $11,000 has also brought significant volumes of bullish options into the money, in a trend that could add fuel to the rally as dealers who’ve sold the contracts move to cover their exposure by buying futures.

LME copper was up 2.2% to $10,904 a ton by 3:15 p.m. in London, after earlier hitting an all-time peak of $11,104.50 a ton.

Prices have gained more than a quarter since the start of this year, spearheading across-the-board gains for major industrial metals. Like copper, gold has also rallied to a record, with both metals getting support from optimism that the US Federal Reserve will start cutting interest rates this year.

Diverted metal

A series of setbacks at major copper mines are fueling fears that a much-anticipated production shortfall will arrive earlier than expected. Smelter treatment fees — a gauge of tightness in the ore market — plunged below zero in April, raising the prospect that plants will be forced to cut production to stem losses.

And the short squeeze on the Comex exchange in New York drove prices there to an unprecedented premium over the LME. That triggered a rush to reroute copper to the US, meaning less metal available elsewhere.

“The Comex short squeeze is rediverting copper to the US and tightening supplies in other regions,” Gong Ming, an analyst with Jinrui Futures Co., said by phone. “The Chinese market is expected to see inventories withdrawal soon with exports rising.”

The blowout in that price spread wrong-footed major players from Chinese traders to quantitative hedge funds, some of whom are now scrambling for metal that they can deliver against expiring futures contracts.

The wild swings highlight how commodity markets can spiral rapidly out of control when market participants are no longer able to finance their positions — a situation that becomes more likely amid the low inventory environment and logistical snarls that commodity traders have faced in everything from nickel to cocoa in the past few years.

The volatility on Comex also reflects a surge of interest from speculators after forecasts that long-term copper mine production will struggle to keep pace with demand. While less important than the LME, Comex, which is part of CME Group Inc., is a key playground for investors, some of whom have used the exchange to build up large bullish bets on copper in recent months.

“The broader story is that there are new investment funds that are boosting their exposure to copper for a multitude of reasons, and while that’s a global trend, a huge amount of that investment has been heading to Comex,” said Matthew Heap, a portfolio manager at Orion Resource Partners, the largest metals-focused fund manager.

While copper prices have been rising for months, this week’s spike was specific to the Comex and the most-active futures contract for July delivery. By Wednesday, the July price had soared as much as 10%, touching a record high for that contract, even as the global benchmark contract on the LME traded broadly flat.

The move, according to numerous traders and brokers, was a classic short squeeze. Market participants who had placed bets on the Comex contract moving back into line with prices on the LME and in Shanghai, the other global copper benchmark, were forced to buy those positions back as prices rose, creating a vicious cycle.

The spread of more than $1,000 a ton between Comex and London was “something never seen previously,” said Colin Hamilton, managing director for commodities research at BMO Capital Markets. “There has been a squeeze on short positions into contract expiry, exacerbating the move.”

Hedge funds and other traders had taken the other side of the bullish trades on Comex, betting on narrowing differentials between the contracts in New York, London and Shanghai, or between New York contracts for different delivery dates, often using substantial leverage. With prices on the Shanghai Futures Exchange relatively depressed, some Chinese physical market participants had also sold on the LME and Comex, with plans to export.

The July Comex copper contract soared to a record $5.128 a pound ($11,305 a ton) on Wednesday morning. It also traded at a record premium above the September Comex contract — a situation known in commodities markets as a backwardation, a hallmark of a short squeeze.

The price spike was driven by short covering rather than any overall physical shortage, traders and brokers say, but it has shined a light on relatively tight supplies in the US copper market.

Inventories tracked by the Comex currently total 21,066 short tons, while LME inventories in the US are just 9,250 tons. For comparison, annual US copper demand is almost 2 million tons. Traders say solid demand, and shipping issues at the Panama and Suez canals, have left the market tight. US copper imports year-to-date are down 15%, according to consultancy CRU Group.

“We continuously monitor our markets, which are operating as designed as market participants manage copper risk and uncertainty,” the CME said in a statement.

Short squeezes are nothing new in commodity markets, and they often prompt a mad scramble to find supplies of raw materials that underpin paper contracts.

In 2020, as Covid locked down much of the world, gold traders raced to ship metal to address a similar dislocation between New York and London bullion prices. And in 1988, a short squeeze in aluminum led some traders to load the metal into jumbo jets — a highly unusual and costly mode of transport for industrial raw materials — in order to get it on to the LME as soon as possible.

The current Comex copper squeeze has triggered a similar dash to send copper to the US. Chinese traders have spent the past 24 hours calling around shipping companies to try to secure transit to the US, according to people familiar with the matter.

Traders and miners in South America have also raced to boost their US shipments. Chilean copper-mining giant Codelco is directing all of its available volumes to the market and also negotiating with customers to postpone some sales so that it can maximize deliveries, people close to the situation said. Codelco didn’t immediately respond to a request for comment.

There have been some signs that the squeeze is easing: the July copper contract edged lower on Thursday morning after coming off its highs from Wednesday, while the premium over cash copper on the LME narrowed to $573 a ton — although still a historically elevated level.

There may be further relief ahead, as investors with bullish positions via commodity indexes are set to start rolling their copper positions in early June, providing an opportunity for traders with short positions to defer delivery, potentially easing the backwardation.

Still, it’s not clear if that will be enough to resolve the squeeze ahead of the expiry of the July contract, which goes into delivery at the start of that month. Chinese traders seeking to transport metal to the US have found that shipping schedules are fully booked, with the earliest available shipping slots from Shanghai to New Orleans at the beginning of July, said Gong Ming, analyst with Jinrui Futures Co.

Adding to the predicament of those caught out by the squeeze is the fact that much of the copper inventories outside the US is from brands that aren’t deliverable against Comex futures. For example, more than 80% of the 94,700 tons of copper on the LME at the end of April was produced in Russia, China, Bulgaria or India — countries whose copper isn’t deliverable on Comex.

While substantial inventories have built up in China in recent months, traders estimate that only about 15,000 to 20,000 tons of that could be delivered against Comex futures.

“We do not think the physical arbitrage activity will be sufficient by the July expiry to close the arb on the near month. There is not enough material and not enough time,” said Anant Jatia, chief investment officer at Greenland Investment Management, a hedge fund specializing in commodity arbitrage trading.

“However, physical traders are currently heavily incentivized to move copper into the US and over time the arb market will stabilize.”

The prospect of Fed easing is adding to tailwinds for copper as bulls predict further gains, with the world’s mines struggling to match growing demand. Goldman raised its year-end price target to $12,000 a ton, from $10,000 previously.

“We continue to forecast a shift into open-ended and mounting metal deficits from 2024 onwards,” the bank’s analysts, including Nicholas Snowdon, wrote in a note. There’s potential for a “stockout episode” — in which inventories run extremely low — by the fourth quarter, they said.

In the US, swaps markets now point to a 54% chance of a Fed rate cut by year-end, up from about 40% at the end of April. And in China, financial markets have returned from an early-May public holiday in a bullish mood on government pledges to boost growth.

Supply stress

Copper is up almost 17% in 2024 amid signs of recovery in global factory activity, as well as flashes of supply tightness — especially for raw materials shipped to smelters. Still, skeptics have pointed to soft indicators in China, from falling import premiums to buyers holding off purchases.

The metal’s gains have been primarily driven by speculation, and may fade as high prices discourage consumption and spur aluminum substitution, Duan Shaopu, a director at China Nonferrous Metals Industry Association, said at a recent press conference, according to a script posted on the group’s WeChat account.

Copper was 0.9% higher at $9,992.00 a ton on the London Metal Exchange as of 3:13 p.m. local time, as all metals except nickel gained ground.