Metals pause, firmer dollar and weaker oil are headwinds

The stronger tone continued yesterday aided by signs of a turn round in Chinese trade data, the base metals closed up an average of 1.3 percent, led by a 1.8 percent rise in zinc, with nickel up the least with a one percent gain – copper closed up 1.2 percent at $4,837. Precious metals were generally weaker, closing down an average of 0.4 percent with gold prices off 1.2 percent at $1,241.50, while silver prices were up 0.3 percent.

This morning the base metals are for the most part weaker by around 0.4 percent, with copper at $4,824 but tin is bucking the trend with a 0.8 percent rise to $17,120. Volume has been light at 4,240 lots as of 06:05 BST.

Precious metals are down an average of 0.8 percent, with losses seen across the board ranging between a 0.6 drop in gold prices to $1,234 and a one percent drop in palladium to $535.50.

In Shanghai, most of the base metals are firmer, led by a 2.2 percent gain in zinc, tin is up 1.8 percent and copper prices are up 0.6 percent at Rmb 36920, but aluminium has not been joining in, it is off 0.1 percent. Spot copper in Changjiang is down 0.7 percent at Rmb 36,700-36,900 – this divergence suggests the pick-up in imports is weighing on the spot market. This has removed the backwardation, the spread is generally flat, while the LME/Shanghai copper arb window is likely to be open for some with the ratio around 7.65.

In other markets in China, iron ore has crept back above $60, steel rebar is off 0.7 percent, gold prices are down 1.4 percent and silver is off 0.1 percent. In oil, Brent crude is off 0.8 percent at $43.58.

Equities have been bullish with the Euro Stoxx50 closing up 3.3 percent, while the Dow closed up 1.1 percent, helped by stronger commodity prices and news that Italy had come up with plans to help firms weighed down by bad debt. Asia this morning is bullish with the Nikkei up three percent, the Hang Seng is up 0.8 percent, the CSI 300 is up 0.1 percent, the ASX200 is up 1.1 percent and the Kospi is up 1.4 percent. Singapore’s surprise easing of monetary policy seems to have boost equities in the region as it sends out a signal that other easing/stimulus may follow. This buoyancy in equities seems to be producing a headwind for gold prices and precious metals with ETFs seeing some outflows.

In FX- the dollar is rebounding strongly with the dollar index at 95, conversely other currencies are weaker with the euro at 1.1260, sterling at 1.4125, the yen at 109.44, although the aussie being a commodity currency is holding up better at 0.7655. Emerging market (EM) currencies are weaker following the easing of policy in Singapore, but after some strong gains some profit-taking is not surprising.

On the data front, there is data on EU CPI, the Bank of England will announce its interest rate decision, policy and recent voting, and US data includes CPI, initial jobless claims, natural gas storage, plus FOMC member Jerome Powell and MPC member Nemat Shafik are speaking – see table below for more details.

The rebounds in the metals are pausing this morning but with equities and SHFE metals buoyant we wonder what is causing the pause – the likely reasons are the slight easing in oil prices and the stronger dollar. We wait to see if the early selling is easily absorbed, or gains momentum. If the latter then the recent rebounds may well turn out to be bear flags after the weakness seen in recent weeks. Given the better data out of China we would not get too bearish just yet as if demand is going to pick-up then that could spur restocking in the metals, which can be a powerful force.

Gold prices seem to have lost upward momentum, given the stronger dollar and strength in equities that is not surprising – we expect dips to be well supported. Silver is looking relatively stronger with prices recently overcoming some resistance levels and the drop in the gold/silver ratio looks encouraging. Platinum is holding up relatively well, while palladium is looking vulnerable. 

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Source: Bullion Desk News