Silver prices dip as profit-taking emerges, expect consolidation

The precious metals remained upbeat yesterday with silver prices up 3.3 percent to $20.41, palladium was up 1.7 percent and platinum closed up 0.9 percent at $1,064, while gold prices were up 0.6 percent at $1,349.45.The recent strength in the base metals started to fade yesterday with the metals ending quite mixed with tin up 3.6 percent at $18,000, nickel was up 0.7 percent at $10,000, while there rest pulled back between 0.4 percent to $4,885 for copper and 1.4 percent to $2,117.50 on zinc.

This morning, the base metals are off across the board by an average of 0.8 percent, led by a 1.4 percent retreat in tin to $17,775, nickel is off 1.2 percent at $9,880 while the rest are off 0.4 percent for aluminium and 0.8 percent for lead and zinc. Copper prices are down 0.6 percent at $4,857. Volume remains high at 8,863 lots. High volume and a price pull-back may be a bit of a worry as it suggests a pick-up in selling/profit-taking.

Selling has also been seen in the precious metals where prices are down an average of 1.6 percent, palladium is down 2.6 percent, silver prices are off 2.4 percent, platinum is off 1.1 percent and gold prices are down 0.5 percent at $1,342.60. The pull-back in bullion is not surprising given the extended fund long positions, key now will be how well the dips are supported.

In Shanghai, the base metals are mainly lower, the exception is nickel that is up 0.3 percent, the rest are down an average of 1.8 percent, with lead, zinc and aluminium off between 2.1 and 2.4 percent and copper and tin off 1.1 percent with copper at Rmb 37,630. Spot copper in Cahngjiang is down 1.4 percent at Rmb 37,610-37,810, the spread with the futures is at an equivalent of some $27 per tonne backwardation, while the LME/shanghai copper arb ratio is at 7.75.

In other metals in China, iron ore prices reached $56.22 yesterday, but prices on the Dalian Exchange have dropped two percent this morning. Steel rebar is off 1.9 percent, gold prices are off 0.2 percent, but silver prices remains upbeat with a 1.9 percent gain. In international markets, Brent crude oil prices are off one percent at $49.50.

Equities were weaker yesterday with the Euro Stoxx 50 down 0.7 percent, while the US was closed. This morning in Asia, the market is mixed with the Nikkei down 0.9 percent, the Hang Seng is off 0.8 percent, the CSI 300 is up 0.1 percent, the ASX200 is down 1.1 percent and the Kospi is off 0.3 percent. China seems to be avoiding the weaker tone, as the Caixin services PMI data shows China’s service are picking up, the data came in at 52.7 from 51.2.

In FX, the dollar index continues to consolidate, last at 95.62, sterling remains weak at 1.3250, the euro is at 1.1130, the aussie is firmer at 0.7517, as is the yen at 102.13. The yuan is last at 6.6638, the rupiah is stronger, while the other emerging market (EM) currencies we follow show consolidation. On the one hand, the EM currencies are benefiting from the likelihood of low US rates for considerably longer, while on the other hand they are not signalling too much fretting about contagion for Brexit. We would add that it may still be early days for any negative impact from Brexit as the process has not really started yet – we may be in the eye of the storm.

The economic agenda is busy with services PMI out across Europe, plus there is EU retail sales, the Bank of England’s financial stability report, US factory orders and IBD/TIPP economic optimism. In addition, Bank of England Governor Mark Carney and FOMC member William Dudley are speaking – see table below.

We have viewed the run up in metals as being fund driven as the physical markets remain quiet with most reporting good availability and generally flat, or weaker premiums. As such, if the fund buying is fading it is not surprising that selling, either from producers, or profit-taking from longs, is now weighing on prices. Key over the next few days will be whether the pull-back in prices is met by scale-down buying. For now we see this as consolidation, but given how well prices have done recently, especially in zinc, nickel and tin, buyers may well be waiting to buy into any pullback. The better Chinese services PMI data that suggests the transformation of the economy from heavy-industry/exports  to services is underway, may dampen expectations of the large-scale stimulus.

The run up in precious metals at the same time as base metals and equities were rallying, suggested that risk-on was underway across the board. With base and precious metals now seeing some selling, silver prices are off 2.4 percent, this pull-back seems to be more to do with profit-taking and some producer selling, rather than signalling a change in sentiment. Note the yen remains strong, sterling and the euro remain weak, so safe-haven demand seems to be holding up fairly well for now, as such we would expect dips in bullion to attract further buying.

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Source: Bullion Desk News