denisovail1986: METALS MORNING VIEW: Sell-off in gold pauses as dollar’s rebound falters

Base metals prices on the London Metal Exchange are once again down across the board, with average losses of 0.3% this morning, Friday September 29. Volume has been average with 5,910 lots traded as of 06:42 BST.

This after a bullish performance on Thursday that saw the base metals complex close up by an average of 0.9%, spread between a 0.2% rise in tin prices and a 1.7% rally in three-month copper prices to $6,552.50 per tonne. So some consolidation once again seems underway so far this morning.

Precious metals prices are split between bullion prices that are weaker and firmer platinum group metal prices. Spot gold and silver prices are off by 0.2% and 0.3%, respectively, with gold at $1,284.49 per oz, while palladium prices are up by 0.8% and platinum prices are up by 0.1%. This after bullish day on Thursday that saw average gains of 0.3%.

On the Shanghai Futures Exchange (SHFE) this morning, aluminium prices are off by 0.4%, while the rest are stronger. Copper leads the pack with a 2% rally to 51,420 yuan ($7,717) per tonne, followed by gains in lead (1.5%), nickel (1.2%), zinc (1.1%) and tin (0.3%).

Spot copper prices in Changjiang are up by 0.7% at 54,420-51,560 yuan per tonne and the London/Shanghai copper arb ratio remains little changed at 7.88 from Thursday, but up from 7.79 on Wednesday.

Iron ore and steel rebar prices in China continue to weaken, with January iron ore prices down by 2.1% this morning at 449.50 yuan per tonne on the Dalian Commodity Exchange, while SHFE steel rebar prices are down by 0.9%. Gold and silver prices on the SHFE are little changed, both up by just 0.1%.

In international markets, spot Brent crude oil prices are off slightly, down 0.08% at $57.16 per barrel, and US ten-year treasuries have given back some of Thursday’s gains with the yield falling to 2.32%, compared with 2.35% around this time on Thursday. The German ten-year bund yield is unchanged at 0.47%.

Asian equities are for the most part positive this morning, the Kospi is by up 0.8%, the Hang Seng and CSI 300 are both up by around 0.3%, the ASX 200 is 0.2% firmer, while the Nikkei is off by 0.2%. This follows a firmer session on Thursday, where in the USA, the Dow closed up 0.18% at 22,381.20; and in Europe, the Euro Stoxx 50 closed up 0.24% to 3,563.64.

The dollar’s rise paused on Thursday and it is consolidating today. The dollar index was recently quoted at 93.25, so once again we wait to see if the dominant downward trend reasserts itself, or whether the downward trend has run its course and the ship has turned. A move up above 94.15, would suggest the latter. The direction of the dollar could have a meaningful impact on the underlying trends in the metals, especially gold. The pullback in currencies is also on hold with the euro at 1.1774, sterling at 1.3411, the yen at 112.71 and the Australian dollar at 0.7833.

The Chinese yuan continues to weaken, it was recently quoted at 6.6777, having been as strong as 6.4345 on September 8, but the weakness seen in the emerging currencies we follow has eased with the currencies consolidating in line with the dollar’s consolidation.

The economic agenda is busy today, with a host of Japanese data mostly beating their previous readings – see table below. Later there is a key data out across Europe, the UK and the USA, that should give traders insight into how concerted global growth is. In addition, three central bankers are speaking including UK Monetary Policy Committee member Ben Broadbent, Bank of England governor Mark Carney and US Federal Open Market Committee member Patrick Harker. A combination of all this data and positioning ahead of month/quarter-end, could make for an active trading day.

The base metals are looking somewhat stronger this morning following Thursday’s rebounds, but the overall tone in recent weeks has been one of correction and consolidation. That said, we have viewed the weakness as the market reacting to overbought conditions and have expected dips to attract buying that seems to be emerging now. With China’s National Day Golden Week holiday kicking off next week we expect choppier trading as liquidity thins. We would remain on the lookout for buying opportunities.

The stronger dollar and more confidence that the US Federal Reserve knows its stance, combined with a market that has become tired of the ongoing rhetoric but lack of progress over North Korea, are keeping gold prices away from the high ground, but there does seem to be dip buying into weakness. The North Korean situation is likely to escalate again at some stage, so the next rally in gold prices may not be that far away, but while we wait for that we would take direction from the dollar. Silver and platinum continue to follow gold’s lead, while palladium prices appear to have put in a base.

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