I have been asked by several readers for my thoughts on gold, precious metals, and copper. I hinted at some inclinations Ramblings & Ruminations Mid-Year Review where I discussed my concerns around the USD topping out/rolling over given extended USD positioning and my fundamental view around another Triple Yasu (USD down, bonds down, equities down/violent chop/Risk Off), but the idea here is to lay out my preference in detail. My thoughts here will lean on the macro in that note (particularly the third section on the USD), so if you missed it, I might read that first.
Let me start by saying:
With my libertarian sympathies for "less is more" amidst ever-growing market distortions, hyperfinancialization, and financial nihilism particularly among the younger generations who increasingly seek to gamble their way out of the 'permanent underclass,' you would expect me to be drawn to the asset that has proven itself over millennia as the ultimate 'opt out'… or as my buddies Vinny Daniels and Porter Collins over at Seawolf like to say: gold is my therapist.
Still, if the insane near-halving of the oil price in 2Q back to pre-war levels has taught me anything, it's that I want to be extra careful in settling on a trade that is "85% there," or where the technicals and fundamentals conflict. If a setup shows breaking (or broken) momentum, or simply has a chart that is not confirming a bullish narrative, I want to remain attuned to positioning and flow above all other considerations. My problem is that while I see a lot to like in gold (and silver) on the long side, I'm just not there with confidence yet.
To start with, I have read a lot of notes over the past few weeks from investors getting bulled up on gold, and the number of inbounds I have received suggests to me that although many investors (with the notable exception of fast money retail) were positioned well before the blowoff in December-January, there are many long-term holders who have not cut back or capitulated and are riding out this drawdown. The setup also reminds me a bit of when several different traders I deeply respect (Ferg and Le Shrub among them — both worth subscribing) got really bulled up on platinum in the spring of 2024. Their bull theses were entirely valid, and the market's fundamentals only improved thereafter, but you had to wait nearly a year for platinum to start working. There wasn't a lot of downside from when they got involved, but when something suddenly becomes visible among people I respect, I get a little uncomfortable. I'm seeing something similar now.
Positioning also reflects this. On the one hand, the gold miner ETFs' outflows and price drawdown since January shows AUM has cut back notably, particularly among the juniors (all charts mine via Bloomberg unless stated otherwise). However in global gold ETFs, there was a clear increase in all stockpiles in 2025 that is only just starting to roll over.
As physical gold trading has increasingly moved to the Far East, gold trading on the COMEX is becoming less relevant on the global stage; however, positioning is still indicative, and this is where I have an entry issue.
On the bullish side, by early June open interest fell back to levels not seen since the GFC in 2008. The market size has shrunk a lot, at least in the US.
As for positioning among speculators, non-commercial and managed money net longs (by number of contracts) are in the middle of the range over the past decade, while $ notional net long is toward the high end and the middle of the past 2 years.
Zooming in on the past two years, what concerns me is since mid May, gold has fallen from $4500 to $4000, but speculators have increased their position as gold has declined. Moreover, speculative positioning is longer now than it was after the January smash from $5400 to $4700. This is unusual, and suggests to me that investors are buying into the decline rather than capitulating.
Managed money net long as a % of open interest tells a similar story — institutional speculators are buying into the decline of the past few months. This is not what capitulation and a longer-term low looks like.
In silver, the picture is getting more interesting since June. Open interest has declined to lows not seen since 2008 and 2011… and despite a modest bounce in positioning since the initial Jan-Feb smash, net longs are approaching lows last seen in early 2024 when silver was trading in the low $20s. However as a % of open interest, speculators do have a little more room to go on the downside potentially.
So you could make the argument that speculative length in silver is "cleaner" than gold. Still, as this long-term relationship between the USD index and the gold/silver ratio shows, if there were to be some sort of Risk Off rupture in the metals, there is some room for gold to outperform silver (ie the ratio of gold:silver ounces would keep rising), which would presumably hurt the silver price outright.
Now let's switch to copper. There has been a lot of talk lately of speculative length in copper being elevated, and this is true… speculative positioning has grown since Trump's 2024 election, and specs in COMEX copper are carrying nearly $11bn of net long — near the highest levels in history. On a % of open interest basis, managed money and non-commercial (speculative) net longs are getting pretty stretched. At levels like this back in the 2011-15 bear market, there was certainly cause for concern of a near-term top.
Then looking at global inventories, you would be tempted to think that there is no way copper could trade well with nearly 1mm tons of exchange stocks around. But the situation with copper is more complicated. Trump's tariffs have resulted in COMEX trading at a notable premium to LME copper since the 2024 election (just shy of 3% currently). This premium has drawn vast quantities of copper into the US system, as you can see from the ~700k tons on COMEX. In fact, the US has sucked in so much global inventory that COMEX now accounts for 74% of all the world's global exchange inventory!
Like uranium disappearing into the Sprott Trust, this copper is now sequestered so long as Trump's threat of tariffs exists (basically as long as his economic ideology pervades the executive branch). When you back out COMEX, the global inventory picture changes dramatically.
Global copper inventories exhibit a distinct seasonality related to the northern hemisphere's construction cycle. When you back out COMEX inventories, you can see that the copper available ex-COMEX is declining rapidly relative to the past 15 years. Here is the same seasonality for the past five years. Notice how inventories normally flatline somewhat in 3Q before dropping again in 4Q. Instead, non-COMEX inventories are drawing off a cliff.
Morgan Stanley recently confirmed that Chinese copper inventories are drawing faster than normal. Despite the talk of China's real estate and consumer travails, the Chinese Yangshan premium for cathode vs LME ($/t) is blowing out. Usually when LME copper rallies, Chinese buyers step away and the premium narrows. In the case of 3Q21, 4Q22, and 4Q23 when the premium opened, LME copper was near a low and China was buying. In the current case, China is sucking in tons with copper on the highs.
This is beginning to show up in the LME copper curve as the copper cash-3m spread has flipped back into backwardation. Notice how Friday's LME copper futures curve compares to -1wk, -1m, and -6m ago.
Morgan Stanley's recent deck on copper noted the incidence of supply disruptions in 2025 and expected supply growth over the next few years. In 2026, the growth in copper mine supply rhymes with "hero". A compounding issue is Chile. As we saw with Codelco Chairman's comments last week, it's a tough slog. We have discussed sulphur and acid availability on chat (Hormuz) — a growing problem for miners.
So we have a tale of two copper markets — COMEX holds most of the world's exchange inventories, and it is not going back out unless Trump abandons tariffs as a policy. While the premium persists, the US is sucking in the world's metal…and now China is competing with the US to suck in metal.
But Paulo — you said you are prioritizing positioning and flows! Sure copper has hung in there, but it also looks toppy like 2021-22, and COMEX positioning is at extremes!
Indeed, and this is where it gets really interesting because we have to look outside of COMEX to where the Chinese squeeze is now showing up…the LME.
Despite copper trading near all-time highs, open interest on the LME has crashed this year back to 2022 bear market territory. But unlike gold which has not fully rinsed speculative positioning, the LME speculative net long position for copper (both on a contract and $ notional basis) has crashed to nearly 2022-23 washout levels — with copper on the highs.
So China now appears to be short copper metal and is competing for the US in sucking in stock, and speculative positioning outside the US comes nowhere close to pricing this. Putting COMEX and LME speculative net positioning together, you get an overall picture that is not particularly extended.
Looking at historical relationships between copper and precious metals, things get even more interesting.
Below is LME copper/gold. The vertical yellow lines mark significant lows in the ratio, while the horizontal white line shows that when copper/gold has traded below 4x ($/t Cu /1oz gold), the copper price has tended to perform well thereafter on an absolute basis. Moreover, once the ratio has started to trend up from a major low, it tends to keep going back toward >5x. If the gold price were to stay at its current $4000/oz, that would imply a copper price of ~$8/lb.
Then there's silver/copper, which I could make the case is "cleaner" and more comparable because of silver's extensive industrial demand. The ratio is 1 silver oz:1 Cu lb, using LME pricing. You can see that when silver goes on a big run and spikes relative to copper — particularly once it gets over 9.5x on a $ oz:lb basis — it has tended to be an overextension compared to its historical 5-7x relationship. These spikes also tend to mark a tradable low for copper (with the notable exception of 2011 when the long bear market in all metals began) and a continued drop in the ratio back to ~5-6x where it spends protracted periods of time. A reversion back to the 5-7x ratio, assuming the current $58 silver price stands still, would imply a copper price of $8-11/lb.
I think the spike high for silver coming out of Covid in Aug2020 is indicative. As silver ripped from $12 to nearly $30 in the Covid recovery and the silver/copper ratio ran from ~5x to 10x, copper was already rallying from a Covid low below $5k/t and cycling ~$6500/t. LME speculative positioning was already incredibly net long. Despite silver fizzling out and the extended copper positioning, the copper price kept going another +50% to $10k/t.
There is a massive wall of worry in copper today. Besides concern around the Chinese economy, the most visible concern is the US inventory overhang in the context of a massive expected AI datacenter buildout which has shown up in pricing (via GS). According to GS, the AI Data Center factor has become a primary driver of copper prices YTD.
The narrative does remind me of how tech investors crowded into uranium back in 2020-21 as a "value" energy hedge to their core growth tech holdings. I can't deny that the power gen/components/buildout stories like Caterpillar, Eaton, Vernova, etc have started to break down amidst the violent rotation away from semiconductors and a general stagnation in the AI dreamscape. Copper is adjacent to this, and this is a real risk. The trade is not "sleep at night"…but as a buddy once said: do the hard trade.
I would argue that the current positioning on the LME suggests this concern is reasonably well priced, and even if projected global balances were to notably soften if the AI story were to fall apart, the metal is simply in the wrong place. China (and soon RoW) appears to be the player short copper, and when China comes for something, they really come for it.
Bottom line: If positioning and flows are 90%+ of a story today, then I think LME copper is has a real issue here. It's not that I don't like gold or silver, but I just think gold in particular is not ready for primetime, and the move it had in 2024-2026 requires more digestion. Somehow copper has snuck up on people at $6.50/lb, and while it's not invisible to traders who follow commodities, the positioning is all wrong. Remember mid-last year when silver had already moved up to $40? That's when speculative positioning (on a contract basis) peaked, and then the move from $40 to over $100 saw speculative positioning decline — the squeeze was all commercial. On the LME, open interest is low, and specs don't have longs to sell to commercials if they have to scramble. Where is the paper or physical copper going to come from?
It's times like these when curves start to tighten that I smell an accident and like to rush in.
In terms of investment expression, I prefer to focus on advanced explorer and junior producer equities where recent valuations are terribly depressed and discounts have grown extreme vs large-cap copper multiples currently trading rather full at 15x+ forward PEs and 7-8x fwd Ebitda. This part in particular is not investment advice, but since I know many of you will ask anyway: I own a basket with highly concentrated positions in Aldebaran Resources (ALDE CN) and Surge Copper (SURG CN) along with very small tracking positions in a few other names (TGB, NICU, IE, a few others) — inconsequential size for now). These names are illiquid so I would not use market orders if you think about getting involved. And please do your homework!
Hope these thoughts help.
As always, kindly yours,
Paulo aka Cloudbear