For week ending June 18, 2021
The markets have spoken, and it wasn’t pretty.
Was it the value of the dollar rising that caused the selloff? Or was it because of China’s announcement that they were going to release metal from their stockpiles to put a lid on prices? How about markets had just gotten too far ahead of themselves that caused a correction?
We suspect it was all of the above, and then some, to include the Fed changing its outlook, ever so slightly that they may have to raise rates in 2023, sooner than expected, as inflation and the economy heat up. And if that weren’t enough, as markets began to falter, the Specs came in to turn the retreat into a rout.
As the statistics page clearly illustrates, base and precious metals bore the brunt of the onslaught, with copper in particular giving up 38 cents on the week, and taking the market down to a two month low. More importantly perhaps, copper has fallen 62 cents, or 13 percent from the $4.78 high set in May, and our long term Copper Study Charts are now flashing yellow caution lights as short term guidelines have been violated.
On a month-to-date basis, the average price of Spot copper stands at $4.47, down 17 cents from $4.64 in May.
On a month-to-date basis, the average price of Spot copper stands at $4.47, down 17 cents from $4.64 in May, which will be the first month-over-month decline since the runup started in March 2020. And the rest of the nonferrous complex are also starting to see the yellow lights begin to flicker.
On the precious metals side, its hard to say which one was hit the hardest. On the numbers, palladium was the loss leader, as it fell $312, or 11% on the week, followed by platinum which was down $110, or nearly 10%. Silver gave up $2.17, but the problem here is that after finally getting through resistance at $27.50, it quickly fell back below the line.
Gold remains the odd one out, as it made its high during August of last year when it rose to $2,052, and since then has made a series of lower highs and lower lows, despite fears of inflation. Gold is also signaling caution as it has fallen through short term guidelines in our Price Cycles Study, and is not too far from testing the next level lower.
There was no escape for the equity markets as the attached summary of the Top Ten makes clear. With the exception of Japan, the rest were in the red last week, and the individual charts are looking increasingly precarious as they also seem overextended. Here too, it’s tough to say which one looks most vulnerable, but we think China poses the greatest concern, as a number of reports suggest their economy is slowing, and now they are encouraging a higher birth rate as the population ages, and this comes after years of a limitation on the number of children a family could have. Are there deeper problems that have yet to surface?
India and Brazil continue to experience the devastation of high levels of the pandemic, which makes us wonder if equity markets around the world are next in line for a correction.
Given that China is the world’s second-largest economy, it is less than inspiring that their equity market is up only 1.5 percent on a year to date basis, while most of the rest of the world is running double digit percentage points higher. From a different point of view entirely, notice that India and Brazil are among the strongest with year over year gains of 51 percent and 33 percent respectively in their equity markets. Both countries continue to experience the devastation of high levels of the pandemic, which makes us wonder if equity markets around the world are next in line for a correction.