According to a research note from China Securities Co., Ltd., the Federal Reserve held interest rates steady this week and U.S. Treasury yields declined, yet neither development provided much support to the non-ferrous metals sector. Massive spending plans from major American technology companies have sparked concerns over whether the debt-fueled AI infrastructure boom can be sustained, triggering a sharp selloff in tech stocks. The drop in CFTC gold fund long positions and SPDR holdings suggests gold may be facing a liquidity squeeze as investors raise cash to cover margin calls on tech shares. Even though capital rushing into Treasuries for safety pushed yields lower, it failed to ignite bullish momentum in gold. Liquidity shocks typically need either a triggering event to resolve or a broader easing of monetary conditions. The key views from China Securities Co., Ltd. are as follows:
(1) Gold: Hit by a liquidity shock, the metal consecutively lost the 4,000 and 3,900 round-number levels. Midweek, the Fed's policy meeting kept rates unchanged, and weakening Treasury yields still provided no upward catalyst for gold prices. The metal fell for a third straight week, breaking below both 4,000 and 3,900 USD per ounce this week, with a decline of 3.13%. CFTC futures and options fund long positions dropped continuously from 253,000 contracts in early September to 216,000 contracts. SPDR Gold ETF holdings fell by 18.53 tonnes over the past nine trading sessions, pointing to gold being sold to raise liquidity against the backdrop of slumping U.S. tech stocks and elevated oil prices, even as safe-haven flows into Treasuries drove yields lower. Based on past experience, liquidity crunches are often resolved through monetary easing, and the Fed's latest policy meeting appears to show no signs of monetary loosening yet. Over the long term, soaring debt levels among major economies, excessive dollar issuance, and fiscal support consistently above historical averages 鈥?such as the U.S. federal budget deficit rising to 1.99 trillion USD in fiscal 2026 from 1.78 trillion USD in fiscal 2025, the highest since the pandemic 鈥?have driven up federal debt levels. Concerns over dollar creditworthiness continue to push the center of gravity for gold prices higher.
(2) Copper: CFTC net longs keep declining, and copper prices are gradually coming under pressure. Copper prices weakened this week, while downstream restocking willingness increased, with domestic refined copper social inventories falling by 24,700 tonnes to 66,900 tonnes. As the latest copper concentrate TC dropped to a historic low of negative 240 USD per dry tonne, smelting losses continued to widen, and October electrolytic copper output may fall to the lowest level of the year. Copper prices moved lower, downstream players restocked, but available spot supply tightened, pushing the spot premium up to 1,100鈥?1,350 yuan. Despite very strong commodity fundamentals, high oil prices reinforced rate hike concerns, and the tech stock decline caused gold to face liquidity risk while also fueling expectations of weakening economic growth, weighing on copper prices. Recently, industry participants have grown less confident about forward copper prices, believing that the current period represents the tightest copper fundamentals 鈥?including low non-U.S. inventories triggered by U.S. copper tariffs, reduced Chinese scrap copper supply, and the AI consumption narrative 鈥?leading to a decline in bullish conviction. CFTC copper fund net long positions have continued to fall, putting pressure on copper prices.
(3) Aluminum: Low global inventories support aluminum prices, making them relatively resilient. This week, domestic electrolytic aluminum spot inventories fell by 34,000 tonnes to 549,000 tonnes. The rapid destocking pulled up far-month aluminum prices by influencing near-month contracts, with the Shanghai aluminum spread widening to a rare 1,000 yuan, making Shanghai aluminum appear very resilient. Although the global aluminum market is likely to shift to oversupply next year under the dual impact of overseas capacity launches and Middle East restarts, this is a slow variable that will materialize gradually. The current reality is that both LME and domestic spot inventories are at low levels, effectively resisting bearish forces based on long-term oversupply. Due to insufficient scrap aluminum replenishment and short-term rush export orders at the end user level, destocking is expected to continue probing down to the 400,000-tonne mark, with aluminum prices still having room above 23,000. On the equity side, current valuations for long-term aluminum prices are sufficiently pessimistic. Companies with high dividend payouts at an aluminum price of 20,000 already offer dividend yields of 6%. Given that aluminum prices are unlikely to fall rapidly, investors chasing dividend income may consider positioning at opportune moments.
Risk warnings: 1. A sharp global economic recession leading to a cliff-like contraction in consumption. The World Bank, in its latest Global Economic Prospects report, raised its 2026 global economic growth forecast from 2.3% to 2.6%, but economic growth has already shown a slowing trend in recent years. If the global economy falls into a deep recession, it would deal a massive blow to non-ferrous metal consumption. 2. U.S. inflation spiraling out of control, with the Fed tightening monetary policy more than expected, and a strong dollar suppressing equity asset prices. If the U.S. cannot effectively control inflation and continues raising rates 鈥?the Fed has already implemented substantial consecutive rate hikes, but services, particularly rents and wages, remain sticky, constraining the decline in inflation 鈥?if the Fed maintains high-intensity rate hikes, it would be unfavorable for dollar-denominated non-ferrous metals. 3. Domestic new energy sector consumption growth falling short of expectations, with the real estate sector's consumption remaining sluggish. Although property sales policies have been relaxed to varying degrees, residents' purchasing willingness remains insufficient, and progress in resolving real estate companies' debt risks has been slow. If sales show no improvement, the property completion segment could face a stall risk later, which would be detrimental to domestic consumption of certain non-ferrous metals.
Comments