Copper

Copper for July delivery is higher by nearly 2% this morning to $3.11/lb. At the end of last week Copper was able to find support at $2.90/lb and is now pressuring initial resistance at $3.10/lb. The US Dollar index on Tuesday failed to surpass last week’s high near 87.50 and now is succumbing to selling pressure. A decline below 86.50 would provide further boost to Copper and other commodities. The Euro looks to have made a short-term double bottom. Any strength over the rest of the week would be enough to confirm the double bottom.

In regards to Copper-specific data, stockpiles at the Comex and the London Metal exchange continue to decline. Stockpiles have declined about 13% since the middle of February. Meanwhile Chinese customs data shows imports of refined Copper at “similar levels to 2009.” We must keep in mind that 2009 figures were aided by stockpiling and stimulus spending. At present, Chinese demand remains buoyant and even so at $3.00/lb which is quite elevated in comparison to 2009 price levels. Also while monetary tightening has reduced activity in housing (sales were down significantly at last report), prices are still rising. The Chinese stock market has been a warning sign but we must realize that their market hasn’t always reflected the economy the way we are used to in the West.

Speaking of the West, recent US economic news is supportive. Bloomberg notes that, reports due today on orders for factory goods and new home sales should show gains in April. Also consumer confidence has increased to a 2-year high and the OECD raised its economic growth forecast for the US.

Going forward, Copper will continue to be driven by the US Dollar but perhaps to a lessening degree. Economic data will also be important as Copper tries to find its footing. $3.50/lb now looks to be very strong resistance while $2.90 has been established as near-term support. Copper is within a range-bound pattern and it should stay that way going forward. Look for a bounce to as high as $3.30. If Copper begins to threaten that support then it has negative implications for the global economy.

Platinum

Platinum for July delver is higher by $48/oz or 3% to $1,539/oz as it is recovering from the nearly $100/oz drubbing it took two days ago. Over a two-day period, Platinum fell 19%. In the very short-term we can expect sustained recovery. Platinum remains heavily oversold and a potential short-term double bottom in the Euro is helping Platinum and most markets recover from oversold conditions.

Furthermore, the economic picture in the US seems to be stabilizing in the wake of sovereign debt troubles in Europe. Bloomberg notes that reports due today on orders for factory goods and new home sales should show gains in April. Also consumer confidence has increased to a 2-year high and the OECD raised its economic growth forecast for the US. Finally, Europe’s troubles have served to strengthen both the US currency and US Treasury bonds, which should quell some fears about the US fiscal situation. Hence, US demand is currently not a worry for traders and investors.

In only a few weeks the World Cup will start. Why is that important to Platinum? South Africa is the host country and South Africa is the largest producer of Platinum in the world. ETF Securities believes that Platinum could spike as a result of a disruption in power supplies to mines. Here is how it could happen. State-owned Eskom Holdings generates and distributes 95% of the country’s power. Since it is winter in South Africa, it is safe to assume that with the World Cup taking place, electricity demand will exceed the peak seen last year. In 2008, blackouts in South Africa caused mines to be offline for five days. Keep this in mind as the World Cup approaches.

Normally, we don’t write about the Commitment of Traders Report but I wanted to take a look at it in the context of the 19% decline in Platinum. Open interest and commercial short positions have surged in the last 18 months. Open interest has increased from more than 10,000 contracts in 2008 to nearly 40,000 just weeks ago. We should note that this data is as of last Tuesday. Some of the frothiness was removed during the liquidation. To gauge the extent we will have to wait until the next report. Turning to the weekly chart we see that Platinum has found support at $1,480. The next resistance zone of $1,580 to $1,600 (which is right below the 50% retracement of the decline) is our near-term target.