Gold prices face headwinds as risk-on returns

FastMarkets

Precious metals are consolidating recent gains this morning, Wednesday March 29, prices are ranged between silver being down 0.5% at $18.05 per oz and platinum being up 0.4% at $953.70 per oz – gold prices are off 0.2% at $1,248.76 per oz and palladium prices at $789.90 per oz.

Base metals prices are consolidating on the London Metal Exchange this morning, with prices off an average of 0.2%. Nickel leads the decline with a 0.6% drop to $9,940 per tonne, the rest vary from lead prices being down 0.4%, to aluminium prices being up 0.1%. Three-month copper prices are off 0.3% at $5,872 per tonne.

Volume has been light with 4,477 lots traded as of 06:48 BST. This consolidation comes after a strong rebound on Tuesday, which saw prices close up an average of 1.3%. In turn Tuesday’s rebound followed Monday’s spike lower.

In Shanghai, the May base metals contracts on the Shanghai Futures Exchange are up across the board with gains averaging 1.4%, led by a 2.5% gain in zinc prices and 2.4% in copper prices at 47,420 yuan per tonne. Spot copper prices in Changjiang are up 1.1% at 47,050-47,170 yuan per tonne, with the LME/Shanghai copper arb ratio at 8.08, which means the arb window remains closed.

In other metals in China, September iron ore prices on the Dalian Commodity Exchange have started to rebound, they are up 2.1%. On the SHFE, steel rebar prices are up 2.6%, while gold and silver prices are off an average of 0.4%. In international markets, spot Brent crude oil prices are up 0.3% at 51.50 per barrel and the yield on the 10-year US treasuries are around 2.42%.

Equities recovered from their jittery start to the week, with the Euro Stoxx 50 up 0.8% on Tuesday and the Dow closed up 0.7%. Equities in Asia this morning, are mainly firmer, the Nikkei is off 0.1%, but the rest are stronger with the Hang Seng up 0.1%, the CSI 300 up 0.3%, the ASX 200 up 0.9% and the Kospi is up 0.2%.

In FX, the dollar index is rebounding having gapped lower on Monday morning. At 99.84, the index has now closed that gap – the low on Monday was 98.85. The rebound in the dollar has weakened the other major currencies with the euro recently quoted at 1.0799, sterling is at 1.2389, the yen is at 111.22, although the Australian dollar has rebounded to 0.7635. The yuan has eased slightly to 6.8916, the rupee is strengthening in line with the stronger dollar, while the other emerging market currencies are weaker, led by the rand.

On the economic agenda, Japan’s retail sales disappointed, rising just 0.1%, while German import prices climbed 0.7%. Data out later includes UK lending and money supply and in the USA there is data on pending home sales and crude oil inventories. In addition, US Federal Open Market Committee (FOMC) member Charles Evans is speaking – see table below for more details.

The rebound in the base metals prices suggests underlying sentiment remains strong enough to encourage solid dip-buying, but for most of the metals there is not enough follow-through buying yet to absorb the overhead selling that is still around. Aluminium seems the most bullish of the metals at present, with prices just $11 per tonne below the March 1 peak. We wait to see if the buying pressure picks up as we approach the seasonally busier second quarter and we think it will based on the economic data flow.

Gold prices have rebounded well, but have run into resistance ahead of the February highs. With risk-on returning to broader markets and with the dollar rebounding it is not surprising that gold prices are experiencing a headwind today, but with the UK about to trigger Article 50 and the French election less than a month away, we would expect precious metals prices to be well supported.

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

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