Gold prices rebound as Fed more likely to stay on hold

• Poor US data pushes chances of Fed rate rise in September to 15 percent from 21 percent yesterday

Precious metals had a bullish day yesterday, with average gains of 2.3 percent on the back of a weaker dollar – gains ranged between 1.6 percent for gold prices at $1,347.90 and three percent for palladium at $694. The base metals remained mixed, zinc and lead dropped around 1.6 percent yesterday, while nickel rallied 0.9 percent, aluminium was up 0.5 percent, copper was up 0.2 percent at $4,636 and tin was little changed.

This morning, the base metals are up across the board by an average of 0.4 percent, led by a 0.7 percent rise in copper to $4,670 – gains in the rest of the metals are tightly bunched up between 0.2 and 0.4 percent. Volume remains average with 5,865 lots traded. Focus may be on tin today, where the backwardation has flared out to $240-200 per tonne.

Precious metals have strengthened further this morning, with average gains of 0.6 percent ranged between a 0.2 percent gain in gold to $1,350.80 and a 1.2 percent gain in palladium to $702.60.

In Shanghai, base metals prices are up an average of 0.4 percent, lead and zinc are off 0.1 percent, tin is up 0.3 percent, while the rest have performed better with gains of around 0.8 percent with copper last at Rmb 36,830. Spot copper in Changjiang is up 0.6 percent at Rmb 36,670-36,870, the spread with the November futures is at a small backwardation equivalent to $6 per tonne and the copper arb ratio is around parity, which may well provide some support to LME copper.

In other metals in China, iron ore prices in Dalian are off 3.1 percent, steel rebar is down 3.3 percent, while gold prices are up 1.7 percent and silver is up 2.4 percent. Brent crude oil prices are last at $47.44.

Equities were mixed yesterday with the Euro Stoxx 50 off 0.2 percent, while the Dow closed up 0.3 percent. In Asia this morning, markets are also mixed with the Nikkei off 0.4 percent, the Hang Seng is down 0.1 percent, the CSI 300 is up 0.3 percent, the ASX200 is up 0.2 percent and the Kospi is off 0.1 percent.

In FX, the dollar is weak with the dollar index down at 94.76, down from last week’s peak at 96.25, the euro at 1.1257 is rebounding, as are the yen at 101.35, sterling at 1.3418 and the aussie at 0.7679. The yuan is also stronger at 6.6616 and the other emerging market currencies are all strengthening – no doubt on the back of the weaker dollar as the chances of a Fed rate rise in September recedes to 15 percent from 21 percent yesterday.

Economic data out today shows an improvement in Japanese leading indicators, a deterioration in German industrial production that fell 1.5 percent after a 1.1 percent gain previously. Later data is out on France’s trade balance, UK house prices, manufacturing and industrial production and GDP estimates, there is a UK inflation report hearing and US data includes job openings and the Beige book – see table below for more details.

The metals seem to be back on a front footing with copper and aluminium turning higher after their recent weakness, nickel’s rebound continues as does tin’s rally, while lead and zinc are edging higher again having briefly paused yesterday. The weaker dollar is no doubt helping sentiment and underlying trends in most of the metals remains bullish. We wait to see to what degree copper and aluminium play catch-up on the upside.  Overall we remain mildly bullish, although those already in high ground and where stocks are high, notably zinc and nickel may well be capped by overhead supply.

The precious metals have turned bullish again after their recent tests of support that in most cases initially gave way, but bargain hunting seems to have taken advantage of the weakness and the rebounds have attracted follow through buying. The weaker dollar will be helping and for the PGMs, with South Africa’s AMCU declaring talks with producers deadlocked, the chance of strikes has probably picked-up.

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Source: Bullion Desk News