Gold prices held back by strong dollar headwinds

FastMarkets

Precious metals are holding their ground this morning, Wednesday February 22, with gold and silver prices either side of unchanged, with spot gold at $1,235.10 per oz, while palladium is up 0.6% and platinum is up 0.2%. This follows on from Tuesday’s general weakness that saw silver prices fall 0.5%, gold and silver prices closed down 0.2%, although palladium bucked the trend with a 0.6% gain. At one stage on Tuesday the precious metals were all looking decidedly weaker, but worse-than-expected US data prompted a reversal.

Base metals prices on the London Metal Exchange are for the most part drifting lower this morning, with prices down an average of 0.5% on volume of 7,725 lots as of 06:54 GMT.

Tin is the only metal in positive territory, zinc prices are off the most with a 1.1% decline, copper and nickel prices are off 0.7%, with three-month copper prices at $6,014 per tonne, aluminium prices are down 0.6% and lead is off 0.5%. Today’s weaker tone follows Tuesday’s weakness that saw prices pullback an average of 1.2%, led by a 2.9% drop in nickel prices to $10,835 per tonne.

In Shanghai this morning, the base metals on the Shanghai Futures Exchange are weaker across the board with prices down an average of 1.6% – nickel prices lead the decline with a 2.6% drop, followed by a 2.1% drop in aluminium prices. Copper prices are down 0.8% at 48,650 yuan per tonne. Spot copper prices in Changjiang are down 0.7% at 48,450-48,650 yuan per tonne and the LME/Shanghai copper arb ratio is at 8.09.

In other metals in China, May iron ore prices are off 0.8% on the Dalian Commodity Exchange, on SHFE steel rebar prices are down 1.7%, gold prices are unchanged and silver prices are down 0.2%. In international markets spot Brent crude oil prices are up 0.3% at $56.78 per barrel and the ten-year US treasuries have a yield of 2.4523%.

Equities were firmer on Tuesday on the back of good results and further signs of global economic strength with generally good manufacturing PMI data. The Euro Stoxx 50 closed up 0.8%, the Dow closed up 0.6% and this morning Asian markets are generally firmer, too. The Nikkei is little changed, the Hang Seng is up 0.8% and the Kospi, CSI 300 and ASX 200 are all up around 0.2%.

In FX, the dollar index remains upbeat at 101.48 and strength in the dollar is keeping the cap on other currencies with the euro at 1.0526, the sterling at 1.2493, the yen at 113.42 and the Australian dollar at 0.7688. In emerging market (EM) currencies, the yuan is trading sideways at 6.8632, most of the other EM currencies we follow are also consolidating, although the peso has started to rebound.

The economic calendar is busy today with German Ifo business climate, UK GDP, index of services and business investment. There is data on EU CPI and the ECB’s long term refinancing operation, Chinese leading indicators, US existing home sales and the minutes from the last US Federal Open Market Committee (FOMC) meeting. In addition, UK MPC members Sir Jon Cunliffe and Nemat Shafik and FOMC member Jerome Powell are speaking – see table below for more details.

Consolidation seems the order of the day for the base metals as the higher price levels attract profit-taking and forward selling. The firmer dollar is also probably acting as a stronger headwind now that the dollar looks like it may start to trend higher again. That said, we expect metals’ prices to remain underpinned as we sense sentiment remains largely bullish for the industrial metals, supported by generally good PMI and other data.

Gold prices have levelled off either side $1,235 per oz, we see this as consolidation, but the fact they are holding up well in the face of the stronger dollar also suggests underlying sentiment remains committed. If prices struggle to make headway we would not be surprised to see prices dip as some of the weaker longs take profits. We started to see some weakness on Tuesday morning, but it was short-lived, but it did suggests there was some selling interest around though and there may therefore be more.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

Overnight Performance GMT 06:54 +/- +/- % Lots Cu 6014 -42.5 -0.7% 2089 Al 1872 -10.5 -0.6% 1660 Ni 10760 -75 -0.7% 1362 Zn 2838 -31 -1.1% 2193 Pb 2254.5 -10.5 -0.5% 417 Sn 19835 80 0.4% 4 Average -0.5%        7,725 Gold 1234.03 -1.07 -0.1%   Silver 17.966 0.021 0.1% Platinum 1001.1 2.1 0.2% Palladium 780.8 4.8 0.6% Average PM 0.2%     SHFE Prices 06:54 GMT RMB Change % Change Cu 48650 -400 -0.8% AL 13960 -305 -2.1% Zn 23105 -330 -1.4% Pb 18795 -345 -1.8% Ni 89490 -2380 -2.6% Sn 147970 -860 -0.6% Average change (base metals)     -1.6% Rebar 3528 -61 -1.7% Iron ore 721.5 -6 -0.8% Au 277.25 0.1 0.0% Ag 4219 -7 -0.2% Economic Agenda GMT Country Data Actual Expected Previous 9:00am Germany German Ifo Business Climate 109.6 109.8 9:30am UK Second Estimate GDP q/q 0.6% 0.6% 9:30am UK Prelim Business Investment q/q 0.0% 0.4% 9:30am UK Index of Services 3m/3m 0.8% 1.0% 10:00am EU Final CPI y/y 1.8% 1.8% 10:00am EU Final Core CPI y/y 0.9% 0.9% 10:30am EU Long Term Refinancing Operation 62.2B 11:00am UK MPC Member Cunliffe Speaks 2:00pm China CB Leading Index m/m 0.8% 3:00pm US Existing Home Sales 5.54M 5.49M 6:00pm US FOMC Member Powell Speaks 7:00pm US FOMC Meeting Minutes 8:00pm UK MPC Member Shafik Speaks

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