denisovail1986: Gold prices hold up well, dollar weakness helping

FastMarkets

Precious metals prices are firmer this morning, Monday May 8, with prices up an average of 0.5%, but the gains are with the more industrial precious metals, with silver and the PGMs up an average of 0.7%, while gold prices are little changed at $1,230.67 per oz. The PGMs prices were also firmer on Friday, they closed up 1.2%, while bullion prices were little change.

Base metals prices are weaker again this morning, with prices down an average of 0.9% on the London Metal Exchange.

Zinc, nickel and copper prices lead the declines with losses of 1.7%, 1.3% and 1.2%, respectively, with three-month copper prices at $5,519 per tonne. Lead prices are down 0.8%, aluminium is off 0.2% and tin is up 0.1%. Volume has been above average with 9,103 lots traded as of 06:32 BST.

This morning’s weakness came after a mixed day on Friday, May 5, when aluminium, lead and tin prices were down between 0.7% and 0.9%, while nickel prices bounced 1.5% and copper and zinc prices were up 0.8%. Concerns over liquidity squeezes in China seem to be the main driving force.

Shanghai Futures Exchange metal prices are mostly weaker this morning, the exception is nickel where prices are up 0.1%, while the rest of the base metals complex are weaker with copper prices off 0.3% at 44,870 yuan per tonne, while the rest are down between 0.9% and 1.2%. The LME/Shanghai copper arb ratio is slightly weaker at 8.12. Spot copper prices in Changjiang are little changed at 44,980-45,280 yuan per tonne, their relative strength compared with the futures highlighting that copper prices initially held up when trading got underway this morning, but since spot prices were set, the futures have weakened.

In other metals in China, the slide in September iron ore prices has slowed, it is off just 0.3% at 466 yuan per tonne on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are up 0.3%, gold prices are up 0.1% and silver prices are up 0.7%.

In international markets, spot Brent crude oil prices are up 0.7% at $49.74 per barrel and the yield on the US ten-year treasuries is firmer at around 2.36%.

Equities on Friday saw the Euro Stoxx 50 closing up 0.9% and the good employment report boosted US equities with the Dow closing up 0.3% at 21,007. In Asia this morning, equities are for the most part stronger with the Nikkei up 2.4%, the Kospi is up 1.6%, the Hang Seng and ASX 200 are up 0.5%, while the CSI 300 is off 1.1%.

The dollar index remains on a back footing at 98.60, even the better than expected US employment report did not provide lift. The low on Friday was 98.54. The combination of weak dollar-based metals prices and a weak dollar will make metals prices even cheaper in local currencies. Emmanuel Macron’s victory in the French election has boosted the euro, which was recently quoted at 1.0988. Sterling is strong at 1.2966, the Australian dollar at 0.7412 is running into dip-buying, while the yen is weak at 112.76.

In emerging market (EM) currencies, the yuan is weaker at 6.9017, while most of the other EM currencies we follow are fairly flat, albeit in high ground.

China’s trade data in dollar terms showed exports climbed 8% and imports were up 11%, both were below the gains seen in March, but still stronger than a year ago and suggests the global economy is still strengthening. Japan’s consumer confidence slipped to 43.2 from 43.9, German factory orders rose 1% and later there is data on UK house prices, EU Sentix investor confidence, US labour market conditions and a US loan survey – see table below for more details.

The base metals remain under pressure and prices are vulnerable as support levels have either been breached, as in the case of nickel and copper, or are being tested. We would expect bouts of dip-buying into this weakness, especially as the dollar is weaker too, but with continuing concerns about liquidity issues in China, prices may still have further to correct. We are not overly bearish on the outlook for global growth and see this weakness as coming from stale long liquidation following the rally when prices ran ahead of the fundamentals during the Trump reflation trade. As such, we would be on the lookout for buying opportunities, but not be in any hurry to buy yet.

Haven demand in the run up to the French election has probably already been unwound over the past few weeks, so we are not too surprised that gold prices are not selling off further this morning. However, with the political scene in Europe now more stable, apart from continuing uncertainty about Brexit, equity prices may have further to rise and that could raise the opportunity cost of holding gold. That said, the weaker dollar, combined with some signs of a pick-up in India’s demand for jewellery, may help underpin gold prices. The sell-offs in silver and platinum prices also appears to have halted so bargain hunting may appear.

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