Gold prices ease on likely profit-taking

Precious metals closed yesterday with gains averaging 0.6 percent, with gold prices up 0.7 percent at $1,324.40, this despite Comex gold margins rising following Friday’s increased volatility. The base metals for the most part slipped yesterday as markets consolidated, the complex closed down an average of 0.9 percent with tin off 1.7 percent at $16,775, aluminium was off 1.4 percent at $1,595.50, zinc was off 1.2 percent at $1,998, while copper bucked the trend with a 0.2 percent gain to $4,705.50.

This morning the base metals seem to be stepping through the fog of uncertainty surrounding Brexit and are making a concerted move higher with average gains of 1.1 percent, led by a 1.6 percent rise in nickel to $9,100 and a 1.5 percent rise in copper to $4,779. A look at the chart picture on copper, suggests prices are gearing up to challenge overhead resistance. Volume have been above average with 6,336 lots traded as of 06:25 BST.

Gold prices are off 0.7 percent at $1,315.50, silver, platinum are weaker too, while palladium is firmer. Given the strong pick-up in fund buying of late, combined with the price gains and now margin increases, we would not be surprised to see some profit-taking unfold.

In Shanghai, like on the LME, all the base metals are firmer with average gains of 0.8 percent, led by a 1.9 percent rise in copper to Rmb 37,090, with nickel up 1.4 percent. Spot copper in Changjiang is up 1.2 percent at Rmb 36,850-37,050, the backwardation has been replaced by a small contango, which suggests more of the buying has been seen in the futures than on the spot. The LME/Shanghai copper arb ratio us at 7.77, which should mean the arb window is open for some trading.

In other metals in China, iron ore prices climbed to $53.86 yesterday, steel rebar on SHFE is up 2.6 percent this morning, while gold prices are up 0.2 percent and silver is off 0.7 percent. In international markets, Brent crude is up 0.8 percent at $47.88.

Equities were weaker yesterday with the Euro Stoxx 50 off 2.8 percent and the Dow closed down 1.5 percent, but the markets in Asia this morning are more mixed. The Nikkei is up 0.6 percent, the Hang Seng is off 0.8 percent, the CSI 300 is little changed, the ASX 200 is off 0.5 percent and the Kospi is up 0.5 percent. The markets are expecting further stimulus from the Bank of Japan.

The dollar index is consolidating recent gains, last at 96.04, having peaked on Friday and Monday at 96.70, up from 93.44 on Thursday. Sterling extended losses yesterday, dropping to a low of 1.3122, it is last at 1.3293, the euro is edging higher, last at 1.1060, as is the aussie at 0.7398, while the yen remains strong at 101.94. The yuan continues to weaken, last at 6.6806, most of the other emerging market currencies we follow are consolidating recent losses, while the rupiah has strengthened again and is challenging recent highs.

Data out today includes German import prices that climbed 0.9 percent, later there is data on UK realised prices and US data includes final GDP, GDP price index, HPI, consumer confidence and Richmond manufacturing index – see table below for more details. In addition to data, all eyes will be on the EU summit and how the leaders square-up as they deal with Brexit.

For a change, copper seems set to take the lead in the base metals, with the rest looking well placed to follow. The fact prices have quickly recovered from Friday’s shock and copper has managed to rise despite the stronger dollar looks encouraging. Whether the strength is sustainable is another question, it may be we have to wait to see what Friday’s Chinese PMI data looks like before we get an answer to that.

Gold prices are consolidating the strong gains seen on Friday – between Thursday’s low and Friday’s peak, gold prices moved $108, so some profit-taking and consolidation seems likely, especially given how much potential profit is on the table given the increase in the gross fund long position in recent months. The gross long position in gold stands at 358,825 contracts, up from 150,229 contracts at the end of 2015. Silver is following gold from a distance while the PGMs are still rangebound.

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Source: Bullion Desk News