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Dr. Copper as it is called looked a little sick yesterday after China’s economic growth came in weaker than expected. Even as the long- term outlook for copper demand remains unchanged in the short term macro-economic factors and talk of a supply build-up are causing copperitis.

Bloomberg Reported that not only is China’s demand at risk because of a slowing economy but perhaps because of shortages are seeking alternatives.

Bloomberg writes that “For months, as copper spiked to record levels and then fell back down again, one key question has bubbled up across the metals industry: What is China’s state grid operator up to?

The world’s single biggest buyer of copper, State Grid Corp. of China, has slowed its purchases of copper wire this year, while at the same time ramping up purchases of aluminum wire, a cheaper substitute. While arguably a natural response to soaring copper prices, the change has ignited a debate over whether there’s something bigger going on — if one of the metals industry’s most important but opaque buyers might be undergoing a shift in policy that could rock the global market.”

Yet at the same time, Bloomberg also writes that they might not have a choice.

They said ‘Chinese copper smelters are bracing for a potential shortage of scrap metal as Beijing’s efforts to create a level playing field have the unintended effect of reducing supply. The Fair Competition Review regulation, due to take effect in August, forbids tax benefits without either approval from the State Council or permission by existing law. Many of China’s copper scrap processors rely on tax rebates from local governments, so may have to cut production, which will hit smelters that need the feedstock to make refined metal. Around 30% of China’s refined copper production used scrap metal as a feedstock in 2023, Chen Xuesen, a spokesman at the China Nonferrous Metals Industry Association, said in a press briefing earlier this year.’

Despite this drama we still see the copper market rebounding. Use weakness to position. Hedgers should hedge.

In fact  Fed Chairman  Jerome Powell didn’t seem to inspire a lot of hopes that they would cut rates sooner rather than lat,er but a September rate cut more than likely is still on the table .

Still, the dollar rose but surprisingly enough the gold market heldup. Barrons said it was a ‘delayed bullish reaction to the attempted assassination of former President Donald Trump over the weekend.”

And while that may be partially true the physical demand for gold continues to be extremely strong.Barrons also reported that “As of Friday, inflows into gold markets totaled around $10.9 billion on-week, JPMorgan analysts said. The U.S. bank is bullish on gold prices into year-end, seeing prices rising towards $2,500 an ounce in the fourth quarter, analysts said in a note.”

Obviously that happened before the assassination attempt. No, I’m not saying that somebody knew something ,I’m just saying that the physical demand for gold was strong before the assassination attempt as well.

Silver did top over and not performed as well as gold yesterday but still looks solid and still should be caught. On dips we expect physical demand for silver to stay strong its gold is near record highs at some point. I believe that silver needs to catch up to gold and that means that in the longer term we’re on target for an all-time high and silver.

Not only is silver undervalued compared to gold but so is platinum,which is attractive because of its wide discount to gold, increasing industrial applications, and inclusion on the critical mineral lists of many countries.

So what I am e saying is that the Super cycle and metals, both industrial and precious, is still alive and well.

For those with risk tolerance perhaps the best way to trade the medals is to write calls against long positions to take advantage of the extremely high volatility in the prices of the metal’s options.

And if you want some downside protection you could Buy out of the money puts but that depends upon your risk tolerance and how much money you want to make on the trade.

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