Is copper too cheap relative to gold?

Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the hosts and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey everyone, it is Wednesday, 9th of September, 2026, and we are sitting here with crude oil prices at new local highs for the cycle. I think kind of pressurizing a risk sentiment a little bit. We did climb the wall of worry back after the initial shock of the Hormuz Strait situation, but the latest news of five tankers being attacked, Iranian tankers that is, by the U.S. in retaliation purportedly for Iranian attacks on U.S. warships. And we actually saw that November Brent going above $100 at one point this morning. intermediate at 94 for the October contract, rolling into 91. And Ole, you're in the studio today. Glad you could come in. We talked a little bit about this. I mean, that forward curve is so aggressively backward dated. I think I looked at six months forward crude below 81 bucks a barrel. And it means that those that have just sort of stayed long through all of this, they get that positive roll yield, whether it's crude oil, whether it's especially some of the product contracts. And some of these returns are just incredible this year. Yeah, they're phenomenal. And the tighter the market, the bigger that roll return has been. And this is not an indication of future anything at all. It's just a remark on what's going on here. Reflection of what we have seen up until today. And the one that's really attracting a lot of attention right now is diesel, because diesel prices are trading close to $200 a barrel, so basically twice as much as Brent. And that's really the input to the global economy from trucks to tractors to. To cars and heating and ships and so on. So that's really the, I would say, the inflationary input from this crisis. And the tightness we've seen in London Gas Hall as an example, the price is up an astonishing 100% year to date. So when you say the price is up, just that's the spot price? That's the future price. That's the front future contract compared to where we started here. But if you had that position, had a future contract that started here and you've been rolling it at everybody. A month when they expired, you'd be sitting on the return close to 200%. Oh, wow. So it's just incredible how much that has impacted. If you look at Brent, I think the year-to-date increase around 64%, but the roll return in everything included is around 102%. Looking ahead, the one-year price difference between the Brent spot and Brent in a year's time is around 20%, and in Gas Hall it's around 33%. And that's an indication. And that's an indication of where the market right now sees that forward curve move in the next year. But as we've seen in the past few months, that can obviously change very dramatically. Yeah, and the whole idea, just for those uninitiated in how the forward curve works, it essentially means less transaction costs, and depending on when you roll exactly, that if the price of crude oil essentially stays the same, you're up 20% in a year. That is correct. Or if it drops 10%, you're still up 10%-ish, because it didn't drop the 20% that it was already priced at. Yeah. And it just highlights the. When you have a market with tight supply, the price may be high already, but there is a reason why they're high. And as long as the curve continues to reflect that tightness, then that's when the selling appetite is relatively muted in any given market. But for now, up until so far this year, it really has been an energy story. If you look at the Bloomberg Commodity Index, which tracks 25 commodities across all the different sectors, it's up around 35%. And if you take away the roll yield. And that gain would have been around 27%. And a lot of those eight additional percent, they come from the energy space. Right. And speaking of energy, we've got natural gas prices here in Europe hitting a new high for this cycle, 78, well, I guess it's euros for whatever that unit is on the TTF contract that is tracked, and still struggling to build these supplies into the winter. In Europe, at least, gas is essentially free. That's a joke, of course. In the U.S., but at a much, much, much higher price. Eight, nine times what it's selling for in the U.S. I think I saw something about there might be some reasonable prospects for an increase in LNG cargoes coming out of the U.S., but there's a lot of building to do, and this is going to be important for Europe. It is important, and we're focusing a lot on these inventory levels because it gives us an idea about what kind of buffer we have heading into the winter. But we should also remember that a normal winter, depending on obviously how cold it gets, only gets something like 20 to 30%. It's 30% of its total gas from these inventory levels. The rest has to be constantly imported. So it's not the whole story. There's a flow rate that is just constantly coming in, and that's the bulk of what you're consuming, but you're going to consume even more than that because it's cold, and that's what comes out of storage. Yeah, and that's really, if we suddenly hit the deep freezer, then you dig into your reserves because obviously imports cannot keep up with the demand at those peak periods of demand. So that's why these inventory levels. They are as important as they are. One of the reasons, I think we talked about it on a prior podcast, the reason why it's been building so slow as well is clearly because there is a lack of gas out there right now. Qatar has sent out, according to Reuters, 18 LNG ships since the war started. In a normal year, in that same period, they would send out more than 500. So that just gives you an idea about the lack of gas. But at the same time, when you have a market that's in backwardation, i.e. the spot price is the highest, then you're actually right now buying gas. At a higher price than where you expect to sell it in the winter months. It does not encourage storage, ironically. That is not encouraging storage, and that's why we know in a normal year when these markets are in contango, that's why gas in the U.S. is so difficult to trade from an investment perspective because for a long period of time, it's trading in contango because it's cheap in the summer and relatively more expensive in the winter. But that encourages the stockpiling and the build of reserves, and right now, throughout this summer and throughout this. This crisis, the price that you paid in the spot market was higher than what you could sell it through the Ford markets during the winter period. Obviously, it's only a part of the gas market that's traded as spot products. A lot of that's on contracts, so clearly at much lower levels than where we see it right now. But it is part of the story then why we have struggled to rebuild simply because there's no economics in paying high to sell low. Okay. And there's also, as I understand it, that when you get to a certain level of storage, the storage becomes a problem in terms of pressurizing and getting stuff out of storage. So let's not get into that panic situation, but apparently when you're getting down into the sub-50% storage, sub-30% storage, the pressure is difficult. I'm talking about once we get into February, March, April of next year. So these things can be important to watch. And John, it's interesting. I put out a note last week, and I was just doing a little bit of research around the El Nino that has been so much focused on because we're seeing some of the. The agricultural prices having rallied quite strongly in the last couple of months in anticipation and already on signs of emerging tightness. El Nino apparently in normal cycles should mean milder winter in Europe. And so whereas it may have a negative impact, very hot weather in parts of Asia, it potentially could lead to a milder weather in Europe. And really that's going to be interesting because if that turns out to be the case, then we're scot-free. And we go through without too much of a concern. Yeah, there's two directions we can go with the natural gas thing. You talked about Qatar. There's interesting in the copper supply chain because of sulfur and sulfuric acid. And there's also the weather route you mentioned. 2.7 degrees is the latest measure on that key section of the ocean, up a tenth of a degree. It's kind of slowed down the rise in that one. I'm interested to see where it ends for the cycle, which could be, let's say, beginning November, perhaps, maybe beginning of December. The previous record, since these measurements began in past decades, is at 3 degrees. It's at 2.7 right now. So let's hope we get that mild winter for the sake of the Europeans, at least. But then there's the, I mentioned a little bit there, the sulfur you get from sour gas that Qatar produces. They produce a lot of sulfur and a lot of that goes into the sulfur acid, sulfuric acid supply chains globally. And that sulfuric acid is a key component for some copper extraction. I don't know to what degree that's playing a role here. We saw a record copper price yesterday. It's still quite high up there, at least in London. But what's your next focus here for copper? Well, if the trajectory continues where we have suppliers reporting lower than expected production and demand remains as firm as it is, and copper is continued to be shipped towards the US because you want to have it on shore if there is any terrorist announcement, then the global. The global market will remain tight and that will add support. We've probably not reached anywhere near levels where there's demand destruction, but it's just almost a perfect storm right now where producers in Congo and South America, the two biggest production hubs, are both reporting lower production than anticipated as long as demand remains strong. And also in China, this time of year is heading into their peak demand season. We just saw some stimulus or some. Was it. Was it some grants being handed out earlier in the week, the Chinese government or the to stimulate the economy and into banks and potentially if that feeds through to more lending, that could obviously underpin growth and demand. So China's heading into its seasonal strong period and that will also underpin prices. But I think the ultimate is simply the US because 70% of visible exchange-monitored stockpiles are currently in the US. That is a record level. It's a country that probably consumes, what, 7% max of global annual copper demand. That may change, though, in coming years. That could change, but there's a huge stockpile. But the economics, the arbitrage has basically been favoring buying copper around the rest of the world and shipping it to the US. If there's no tariffs, potentially some of that arbitrage could reverse in the other direction and we can see supplies coming back into the market. Yeah, there was an interesting single-company story as well. This Ivanhoe, it's a mining outfit. I mean, we're talking about a company that in 2023 had essentially no revenue, now is expected to have $770 million of revenue this year. So we're talking about a company that's ramping up in terms of actual production. They've got some mines, and this is one of the difficult things with these companies, mines in places where you're concerned about the political stability, you're concerned about the ownership over time. You mentioned Democratic Republic of Congo. That's one of where their main assets is, and they just revised. Yesterday, their estimation of the amount in the ground, and I think Ivanhoe has only about 40% ownership of this mine, but still 12 million tons, apparently, this mine could potentially have. That was the upward revision. The upward revision wasn't 12 million. The total is 12 million tons. Just to put that in, and I have no idea if that's to be produced over the next 50 years, over the next 20 years or what, obviously over a long period of time, but 12 million tons of copper, that's $177 billion worth of copper at today's prices, and global demand, primary demand, that is what is not being satisfied by recycling, is at around 23 million tons. That's a huge figure, and that's a lot of money as well. 300, what is that? About a 300, not including the recycled stuff, $350 billion market size. So yeah, just interestingly, these companies and the whole copper space and the difficulty, I mentioned it a couple of episodes ago, Ula, you weren't here where I sent along, a long Twitter thread, and it might have been you that actually passed it along to me, just describing this staggering difficulty of seeing how copper supply can meaningfully grow without a big price signal. Indeed, and as you mentioned, John, we don't know how many years this copper can be extracted. Some of it is relatively, we don't have to create mines, you can take it, scrape it off the surface, but it's still years. Open pit mining, I think that's all, yeah. It will still take years, and there's another article I wrote about Australia, where basically it's a headline, well, copper is a record, but why are they producing less? And in Australia, basically, they say, well, we're producing gold. We want to focus on gold because of the price, and we know for sure that the demand is there. So again, copper is not only competing with silver, it's competing with other metals. If there are alternatives from these mining companies where they are putting their efforts, and it's wherever they can get the marginal profit the highest. So perhaps what's the gold-copper ratio? We've been talking about that from time to time. It used to be a good indication between whether the market is defensive or offensive, or the economy is growing or not. But right now, the copper-gold ratio potentially could indicate that, well, gold is more profitable, and so we'll keep an eye on that. Yeah, maybe copper needs to go up in price would be the long-term signal. And it basically has to, to get the supplies needed. This AI build-out is going to continue, and the growth of the AI build-out is to continue at anything resembling the recent pace. Let's close out on the commodity space. With gold, it's really stuck in a really pivotal area. They had that big breakthrough technically to the upside. I described it as being not terribly good-looking on the chart and kind of disappointing, but you're actually saying today that it's actually doing quite well given the backdrop. So perspectives on gold at the moment. Yeah, you're right, John. We saw the rebound last month. And since then, we've basically gone quiet or stale around 4,400. It looks like it's almost a $200 range that we are trading within. And in the last few weeks, the focus really has been on rate hikes. It's been on the surge in bond yields. And I would say with that in mind, gold is actually doing reasonably well. And the supporting fact is coming from the dollar, which has lost some of its strength, especially against the yen, but also Korean Wong. So it's really the Asian currencies that have been driving the dollar weakness in the last months. And gold has benefited from that. So where do we go from here? Well, I think the CPI, PPI prints later this week, it's pivotal simply because of the focus we know it has from the FOMC members. And that could set the tone. Technically, I just put out a note this morning. We looked a little bit, John, this morning. It's probably not perfect, but if you look at the chart, if we break below 4,000, 4,300, there is perhaps a bit of vacuum, a bit of thin air back down towards the lows. Looks like a capitulation area. Yeah, exactly. So that area needs to hold. At the same time, if we can establish another foothold above the 200-day moving average, then the market will start to look up towards the 4,700s in that kind of area. So it's pivotal right now. And we need to get some further news. And most certainly the CPI could be an interesting one because I assume, if we don't get a rate hike next week, we're definitely not going to see anything on the other side of the midterm election. So they're not going to do anything just, you know. Oh, just ahead of the election. Yeah, October 28th, I believe, is the. I don't know, maybe if they're screaming inflation, maybe they feel like they have to. But it really is a surprise either way next week because when you're a 62% price, that means you're going to surprise no matter what you do. Yeah. Although the CPI could be absorbing some of that surprise by either being hot or cold and going into that, going into that. Going into that FOMC meeting. And just to round it up. And so one thing is the dollar. But it just, you just have this feeling that there are other, there's a demand out there in gold, which may not be visible to the eye. But if it's there, it's most certainly from investors who are not interest rate sensitive. So that, again, the suspicion always falls on central banks. But I think there's also some asset managers reallocating simply because of what the uncertainty we have in the bond market. Yeah. I got this news item overnight. China bought 650,000 ounces. That's 20 tons. It sounds like an insane amount. I did the math. I'm not sure if it was much more than a couple billion dollars for the gold, but still it's a lot of gold. There is that steady demand from people that are maybe not so price sensitive. Indeed. All right. Thanks a lot for the run through. Thank you. Thorough run through there of all the commodity action. And I will round off a couple of comments on macro and FX and some equity market stuff. Kind of an interesting session yesterday as we saw. NASDAQ almost flat, S&P 500 down over half a percent. I think some of that is the oil price, the energy price related. The equal way down a much worse 1% plus, 1.1% almost. And I think that is, again, showing a slightly broader risk off tone, but the SOX index of semiconductor stocks up 1.3%. There was a cluster of news that had a bit of enthusiasm in that space, even though we only saw 150 gainers on the S&P 500 versus 350 flat. So we saw a lot of negative stocks on the day. And that was around a Corning story. So Corning reporting that it is going to make, I think it was a deal for 80 million miles of high density optical fiber with Verizon to be delivered over a five year time frame starting next year. So obviously a boost for that stock up 7.6% yesterday. Other optical related stocks like Lumentum and Coherent getting a big boost on that Lumentum at over 11% on the day, in fact. And then the AMD CEO was apparently out at a conference just talking up the incredible scarcity of CPUs and the demand being very strong as far as they could. I can't remember what the exact phrase was, but basically just speaking very highly of the scale of demand and AMD was up almost 6% and Intel was up over 9%. I'm not sure if there was another news item that might have boosted Intel even more so than AMD. But you know, single stories, the cluster of these sort of AI adjacent names doing very well. And there was some really ugly action in some of the software as a service stocks down quite heavily yesterday. So that seems to have kicked back into gear, that sort of plus AI minus software as a service. And quite interesting with that heading into tomorrow's Adobe earnings. And just to point out a couple of technical things. I noticed three big stocks, two of them, the Mag 7 stocks right around the 200 day moving averages here, Meta right at its 200 day moving average as it is rolling out this Muse is what it's calling it. This AI personal agent that control through your basically your personal chats and so on on WhatsApp, Instagram and otherwise, I guess to help you out with setting up dates or reminders or whatever, kind of composing things, but obviously Meta with that special access to some very significant and intimate parts of your your own smartphone. apps and data has maybe a special location in that ecosystem relative to many other companies. And this is a big move to try to monetize that. So apparently you get a free version of it, and then you can get sort of different pay levels above that. Clearly, Matt, I need a meeting to move on that before you start just interacting with your chat GPT directly for these types of things, which, of course, chat GPT can't necessarily access these other apps that are in mid as a universe of apps. So very interesting there. It'll take a bit of time to get some sort of vibe or feel from that. But back to the stocks at key levels, Alphabet right at its 200-day moving average, and Oracle ahead of its earnings report tomorrow after the close, also right on its 200-day moving average. I found those technical setups interesting there. Finally, two more small news items and single company reports. Ford was in the news for being rebuked over its ties to Chinese outfits. It's got a joint venture with Geely. It's starting up in Spain, and it has licensed cattle, so contemporary whatever it's called, Amperex, blah, blah, blah, Technology Limited. This, of course, the world's largest EV battery maker. Ford has licensed some of its tech for production. In Michigan, Ford was sort of very aggressively responded to that, but the stock was down quite a bit yesterday. And then we had Inditex, the big, what is it, retail clothing maker out here in Europe. They are right at their 200-day moving average and interacting with it down more than 3%, the concern there being on rising costs. Very briefly on macro and FX, we saw a dollar yen and the yen cross is sort of backing up. Yesterday, after the aggressive additional move lower, and now we've erased a lot of that backing off. So the yen is strengthening again overnight. And again, we have, even though we have Europe hitting new cycle highs, they're very close to it for much of the yield curve. We had Japanese government bonds actually bid overnight, and those yields falling in Japan. Again, a sign of confidence in Japan, not a sign of concerns about forward growth, I would argue. And that is, I think, a support for the yen when you see that dynamic. Question, though, we got us, you know, we have to take out this 150 to 10 area and dollar yen is still some ways off. And my suspicion is that the ambition is to, for the Japanese authorities, is to get this dollar yen price towards 150 and maybe orbiting around 150. It doesn't want to engineer a massive revaluation. It just wants a stable yen and one that is not, you know, teetering on the brink of a further drop and encouraging these carry traders, etc. So let's see how and if the tone changes, if it does manage to achieve that sub 152 breakthrough and a move towards 150. It's only really if we're, you know, 153 and change, it's only a couple of percent off. It's not exactly a massive further move needed to, to get it into what I would imagine is the comfort zone for Japanese authorities. Yeah, and there was a strong three year treasury auction in the US yesterday, essentially just pipping the prior prior one for the best bidding metrics for 2026. 10-year auction up today. That could be interesting for yields, but it is all about that Friday CPI number as we've been talking about as the last major data point into next week's FOMC meeting. We do have the ECB up tomorrow. I've not been sort of talking about that. There's no real surprise scenario that I can sort of suss out here. Fully priced for a 25 basis point move. Of course, the guidance will be important, but we are already mostly priced for a subsequent rate hike to happen either in the following meeting, but more likely the December meeting, and even for one more to happen in the sort of April-June timeframe next year. So what is the quality of urgency? I guess could be the hawkish scenario if they sound more urgent. I think looking at the supply shock of energy prices, they might be a little bit cautious on growth. And I'm sort of having a hard time drumming up any surprise scenario really, but a hawkish one feels like a difficult one to believe in relative to what is often the case. So I think that's a good point. already priced into the forward curve. Finally, I will put a couple of links in the podcast episode description. I found one of these super fascinating. I'll spoil it here because I just wanted to mention it. It's Eric Townsend of Macro Voices podcast hosting fame talking about nuclear reactors. He passed along a story and he pointed out, I'm assuming his data is correct, he's very deep into nuclear energy and the prospects for it, that I think it was the most recently completed U.S. nuclear plant cost a staggering $17,000, $17,000 per kilowatt of generating capacity is essentially the measure. For perspective, that's insane. Something like eight or 10 times whatever coal or natural gas might cost, if I'm recalling. And then pointing out that the South Korean outfit will be producing nuclear reactors based on a couple of different designs in the U.S., maybe up to eight of them, and that it recently produced some nuclear power or is producing, I think it has produced nuclear power plants in UAE for a cost of only $4,000 per kilowatt of generating capacity, so less than a fourth of the price. So the existential situation here is like, for the build out of AI, the electrification of the, you know, increasingly of the economy, assuming we don't, you know, aren't going to run everything on CO2 producing natural gas, is whether the U.S. can produce these things at a competitive price. Why does it need to cost $17,000 per kilowatt of generating capacity? Can it cost this more towards the $4,000? Super interesting to see how that turns out. And there's the full link that I'll send to that. And then there was a very interesting one. I think this was FDIC. FDIC, Alphaville, most likely passing this along, talking about the AI impact. So the impact of heavy usage of AI on homework quality versus exam results. And of course, homework quality is shot through the roof. Amazing quality these students are able to come up with when they're not having to do the work. And then when it comes to exam time, when they're sitting in a room and can't access the AI, those results are getting worse because they're spending less time on doing better homework because they're not learning. So I think an interesting, you know, thought experiment on the degree to which we're being all dumbified by AI or the risk that we are and the risk that children coming up through the education system are as well. So on that cheery thought, I think I'll close it out for today. It's been a long one. Yeah, stay careful out there. Super interesting. A couple of days ahead. And we'll be back tomorrow with the next Saxon Market Call. This has been the Saxon Market Call podcast. Thanks for joining today's episode. We're always happy for your feedback and questions of all kinds. To reach out, you can drop us an email at marketcall at saxobank.com. That's marketcall at saxobank.com. Saxo, serious trading worldwide. We'll see you next time.