Last week, global financial markets were hit by a liquidity tightening shock. The US April CPI year-on-year soared to 3.8%, hitting a nearly three-year high, while core CPI rose to 2.8%. Combined with the April non-farm payrolls adding 115,000 jobs, far exceeding expectations, market expectations for a Federal Reserve rate cut this year have completely evaporated. The Senate's confirmation of Warsh as Fed Chair has heightened market concerns over his hawkish stance. The yield on the 10-year US Treasury note broke above 4.5%, and the 30-year Treasury yield exceeded 5%, with Japanese government bond yields rising in tandem, leading to a short-term liquidity tightening. The constructive signals released during the Trump visit to China and the US-China leaders' talks provided some expectation of easing in the tense trade environment, but failed to reverse market risk-off sentiment. Copper prices retreated amid the liquidity shock, while precious metals experienced a significant correction.
Core Views 1. Sudden Liquidity Tightening Leads to Short-Term Pullback in Copper Prices Unexpectedly strong US inflation data, coupled with Warsh's appointment as Fed Chair, have led the market to price in a near-zero probability of a rate cut this year, even beginning to trade a nearly 50% probability of a rate hike in December. Rising yields on US and Japanese government bonds have triggered a global liquidity tightening, causing a collective decline in risk assets. Copper prices experienced a short-term pullback against a backdrop of healthy long-term fundamentals. 2. Spot TC for Copper Concentrate Falls Below -$100/ton, Supply Contraction Trend Strengthens The SMM Import Copper Concentrate Index (weekly) reported -$102.84 per ton, down $9.2 from the previous week, historically breaking below the -$100 mark for the first time. China's copper ore imports in April plunged 19.57% year-on-year, marking the first decline since December 2020. Domestic refined copper production in April fell 2.26% month-on-month, with a further expected drop to 1.1675 million tons in May. Although news of the full resumption of Freeport's Grasberg mine being delayed until early 2028 was partially clarified, expectations for tightening supply remain unchanged. 3. Precious Metals Hit by Macro "Triple Whammy," Rate Cut Expectations Vanish Three bearish factors converged: stronger-than-expected CPI, robust non-farm payrolls, and Warsh's confirmed appointment. This combination completely eliminated market expectations for a Fed rate cut this year. The significant rise in the 10-year US Treasury yield and higher real interest rates led to a notable correction in precious metals. COMEX gold fell over 3% for the week to around $4550 per ounce, while silver dropped over 5%. Geopolitically, US-Iran tensions showed no signs of easing, and oil prices remained strong, but their supportive effect on precious metals was overshadowed by macro pressures. The short-term outlook is volatile with a bearish bias, while the medium term awaits signals of cooling inflation data.
I. Base Metals Market Review COMEX/Shanghai Copper Market Observations Copper prices rose initially then fell last week. Early in the week, they received a slight boost from positive signals during Trump's visit to China and US-China talks. However, subsequent stronger-than-expected US inflation data and the confirmation of Warsh as Fed Chair triggered expectations of liquidity tightening, leading to a significant pullback in copper prices. COMEX copper retreated from above $6.71 per pound, touching a low of $6.25 per pound. The main Shanghai copper contract fell from a high of 108,900 yuan per ton to 104,710 yuan per ton. Regarding the term structure, COMEX reverted to a contango, while SHFE nearby contracts returned to a backwardation structure, with domestic spot discounts around 150 yuan per ton. The widening spread reflects that the short-term liquidity shock had a more pronounced impact on the near term.
II. Precious Metals Market Review 1. Precious Metals Market Observations Precious metals experienced a significant correction last week due to a triple macro headwind: US April CPI rose 3.8% year-on-year, the largest annual increase in nearly three years, exceeding the expected 3.7% and the previous 3.3%; core CPI rose to 2.8% year-on-year; PPI climbed to its highest since 2022, with energy costs surging 7.8% in a single month. Simultaneously, April non-farm payrolls added 115,000 jobs, far exceeding expectations, with the unemployment rate holding at 4.3%. The Senate's confirmation of Warsh as Fed Chair heightened market concerns over his hawkish stance. The yield on the 10-year US Treasury note broke above 4.5%, and the 30-year yield exceeded 5%. Market expectations for a Fed rate cut this year completely evaporated, with the CME FedWatch tool showing a nearly 50% probability of a rate hike in December. Precious metals faced significant downward pressure. Geopolitically, US-Iran tensions showed no signs of easing. Early in the week, US forces conducted warning shots near an Iranian oil tanker attempting to pass through the Strait of Hormuz. Iran submitted a fourteen-point proposal via a third party, which Trump deemed "completely unacceptable" on the day he concluded his visit to China. Saudi Arabia and the UAE were accused of directly attacking Iranian territory and refineries on Persian Gulf islands, while Kuwait accused Iran of armed infiltration of its strategic islands, leading to clashes. By the weekend, Iran's major oil export ports had seen no tanker berthings for several consecutive days, with no signs of easing in the overall situation, keeping oil prices strong. However, this geopolitical support was overshadowed by macro pressures. Trump's visit to China and the nearly nine-hour talks between US and Chinese leaders released constructive signals. Both sides agreed to build a "constructive and stable strategic relationship," and their economic and trade teams achieved outcomes such as establishing a trade council and promoting expanded two-way trade, providing some expectation of easing in the tense trade environment. However, this had limited impact on precious metals.
2. Ratios and Volatility The gold-silver ratio rose from approximately 60.6 to about 62.8 last week, as silver fell more than gold. The gold-copper ratio saw a slight increase, as copper prices retreated more than gold. The gold-oil ratio remained largely stable; while oil prices held strong and gold prices fell, the ratio changed little. The Gold VIX rose from 19 to around 25 this week, indicating a clear increase in market panic and amplified volatility due to the liquidity shock. Silver volatility rose above 28. The influence of the RMB exchange rate has increased recently compared to earlier periods. Last week, the spread and ratio between domestic and international gold prices rose, while the spread for silver narrowed and its ratio increased.
3. Inventories and Positions Regarding holdings, SPDR Gold ETF holdings increased by 23 tons week-on-week to 1,101 tons. iShares Silver Trust (SLV) holdings increased by 475 tons week-on-week to 15,992 tons. As of now, total non-commercial open interest in COMEX gold is 264,000 contracts, with non-commercial long positions decreasing by 1,783 contracts to 212,000 and short positions decreasing by 1,045 contracts to 52,000. Non-commercial long positions remain dominant, with their proportion slightly declining week-on-week to around 50.4%, while the proportion of non-commercial short positions fell by approximately 12.5%.
III. Market Outlook For copper, the short-term liquidity shock triggered a price pullback, but the long-term fundamentals for copper remain healthy. The TC falling below -$100/ton, the significant drop in copper ore imports in April, and the reduction in domestic smelter output planned for May continue to strengthen the contraction logic from the mine to the smelter level. Following the price decline, downstream fixed-price purchases increased noticeably, indicating support from buyers at lower levels. On the macro front, Trump's visit to China released signals of easing US-China relations, but the rate hike expectations stemming from stronger-than-expected US inflation still need to be digested. Subsequent focus will be on whether export arbitrage windows can open. For precious metals, short-term macro pressures dominate. The triple headwind of stronger-than-expected inflation, robust jobs data, and Warsh's appointment has completely eliminated market expectations for a Fed rate cut this year, with markets even beginning to price in rate hikes. Rising US Treasury yields continue to exert downward pressure on precious metals. Although geopolitical tensions show no signs of easing, the market's immediate focus is on liquidity tightening.
Attention and Risk Warnings: The first public statements from Fed Chair Warsh after taking office; the next round of US-Iran diplomatic contact (whether there will be new developments after Iran's proposal was rejected); China's April economic data (industrial output, investment, retail sales); and whether the destocking of domestic copper social inventories can resume.
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