Gold prices continue to sink ahead of a likely US rate rise

FastMarkets

Gold led the precious metals even lower overnight with prices breaching the $1,200 per oz level to set a low at $1,196.80 this morning, Friday March 10. Gold and silver prices are weaker, while the PGMs, in line with the base metals are slightly firmer with gains averaging 0.2%.

Has the rout in base metals run its course? This morning, three-month prices on the London Metal Exchange are for the most part in positive territory with gains averaging 0.3%.

Lead is off 0.1%, the rest are up between being little changed in nickel and up 0.6% in aluminium and zinc. Copper prices are up 0.4% at $5,715 per tonne. Volume has been average with 7,423 lots traded as of 06:26 GMT.

These slim, early, gains are seen after some six days of falling prices, which in the case of copper has seen prices drop to a low of $5,652 per tonne, from a high of $6,090 from March 1, a drop of 7.2%.

In Shanghai this morning, nickel prices on the Shanghai Futures Exchange lead on the downside with a 1.2% fall, copper prices are down 0.8% at 46,600 yuan per tonne, while the other SHFE metals are up between 0.1% for lead and zinc and 0.4% on aluminium. Spot copper in Changjiang was off 0.5% at 46,250-46,450 yuan per tonne, while the LME/Shanghai copper arb ratio is at 8.15.

In other metals in China, May iron ore futures on the Dalian Commodity Exchange are up 0.2%, on SHFE steel rebar prices are up 0.7%, while gold and silver prices are down an average of 1%. In international markets, spot Brent crude oil prices up 0.3% at $52.54 per barrel, while the yield on the 10-year US treasuries has climbed to 2.60%.

Equities saw the Euro Stoxx 50 close up 0.6% on Thursday, the Dow closed little changed and this morning most equities in Asia are firmer. The Nikkei is up 1.5%, the Kospi is up 0.3%, the Hang Seng is up 0.2%, the ASX 200 is up 0.6% and the CSI 300 is little changed. So again confidence seems to be returning.

In FX, the dollar index is consolidating in high ground at 101.96, after two recent highs at 102.25 and 102.27. The euro is at 1.0590, the Australian dollar at 0.7525 is attempting a rebound, while the yen is weaker at 115.41, as is the sterling at 1.2156. The yuan is in low ground at 6.9040 and most emerging market currencies are on a back footing, especially the real and rand.

The economic agenda is busy, German wholesale prices came in at 0.5%, after 0.8% previously, but it was above the 0.3% expected. Later there is data on French industrial production, Italian unemployment, a host of UK data including industrial and manufacturing production, goods trade balance, construction output, GDP estimates and consumer inflation expectations. The EU Ecofin meeting continues today, while US data will be focused on the US employment reports. See table below for more details.

Underlying tails on Thursday’s base metals candlestick charts show buyers started to dominate, lifting prices off the lows. We should now get a feel for how strong underlying sentiment is by seeing how much buyers are prepared to chase prices higher following the metals prices’ recent falls. We have seen the sell-off as a correction on stale long liquidation, we have remained overall bullish into the pullback, so we would now not be surprised to see prices rebound. The market seems to have all but discounted a US rate rise next week, Fed fund futures point to an 88.6% chance of a 25 basis point rise – if anything were to shock the market now, i.e. a poor US employment report, then that could delay a rise but that would then likely see markets react bullishly. As such, we think the price risk will start to lie to the upside soon.

Gold prices have fallen 5.3% from their end of February high and they have almost given back 50% of the December to February gains. We see this sell-off as tied into the increased chance of a US rate rise next week. Looking further out, we remain bullish for the metal.

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

Overnight Performance GMT 06:26 +/- +/- % Lots Cu 5715 20.5 0.4% 2282 Al 1886 12 0.6% 2046 Ni 10145 -5 0.0% 894 Zn 2698 15.5 0.6% 1844 Pb 2247.5 -3 -0.1% 338 Sn 19320 95 0.5% 19 Average 0.3%        7,423 Gold 1197.56 -2.14 -0.2%   Silver 16.888 -0.017 -0.1% Platinum 935.5 2.5 0.3% Palladium 743.8 0.8 0.1% Average PM 0.0%     SHFE Prices 06:26 GMT RMB Change % Change Cu 46600 -370 -0.8% AL 13790 50 0.4% Zn 21850 30 0.1% Pb 17835 10 0.1% Ni 84380 -1030 -1.2% Sn 142300 390 0.3% Average change (base metals) -0.2% Rebar 3413 23 0.7% Iron ore 655.5 1.5 0.2% Au 271.25 -2.4 -0.9% Ag 4038 -51 -1.2%     Economic Agenda GMT Country Data Actual Expected Previous 7:00am Germany Trade Balance 18.5B 19.2B 18.4B 7:00am Germany WPI m/m 0.5% 0.3% 0.8% 7:45am France Industrial Production m/m 0.6% -0.9% 9:00am Italy Quarterly Unemployment Rate 11.6% 11.6% 9:30am UK Manufacturing Production m/m -0.6% 2.1% 9:30am UK Goods Trade Balance -11.1B -10.9B 9:30am UK Construction Output m/m -0.3% 1.8% 9:30am UK Consumer Inflation Expectations 2.8% 9:30am UK Industrial Production m/m -0.4% 1.1% Day 2 EU ECOFIN Meetings 1:30pm US Average Hourly Earnings m/m 0.3% 0.1% 1:30pm US Non-Farm Employment Change 200K 227K 1:30pm US Unemployment Rate 4.7% 4.8% 3:00pm UK NIESR GDP Estimate 0.7% 7:00pm US Federal Budget Balance -150.0B 51.3B

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