METAL MORNING VIEW: Gold prices retreat as dollar resumes rebound

Base metals prices on the London Metal Exchange are generally weaker this morning, Wednesday October 18. Zinc and tin prices are little changed, while the rest are down by an average of 0.6%, with copper off 0.4% at $7,009 per tonne.

Volume has been above average at 8,518 lots as of 07:11 BST.

This morning’s trading follows for the most part a day of correction on Tuesday when apart from aluminium that closed up 0.3%, the complex closed down an average of 1.9%, led by a 3.7% retreat in zinc prices to $3,074.50 per tonne.

Gold, silver and platinum prices are weaker this morning, by an average of 0.2%, while palladium bucks the trend with a 0.7% gain to $985.90 per oz – gold prices were recently quoted at $1,283.75 per oz. This follows weakness in bullion prices yesterday that saw gold and silver close down 0.8% and 1.2% respectively, while the platinum prices were little changed and palladium closed up 0.4%.

In Shanghai, the base metals trading on the Shanghai Futures Exchange (SHFE) are down by an average of 1.7% as they follow the corrections in LME prices from yesterday. Lead prices lead the decline with a 3.5% fall, zinc prices are down 2.8% and aluminium prices are off 1.9%, with copper prices down 1.1% at 54,790 yuan ($8,278) per tonne. Nickel and tin prices are down 0.2% and 0.9% respectively.

Spot copper prices in Changjiang are off 0.4% at 55,200-54,400 yuan per tonne while the London/Shanghai copper arbitrage ratio has strengthened to 7.82, indicating SHFE prices have retreated less than the LME price

On SHFE copper prices have also become backwardated, with November prices higher than those in December and January.

The steel-orientated metals in China have diverged with iron ore prices rallying by 1.1% to 461.50 yuan per tonne on the Dalian Commodity Exchange, while steel rebar prices on SHFE are down by 1.1%.

Meanwhile, gold and silver are both off 0.4%.

In international markets, spot Brent crude oil prices are up by 0.14% at $58.13 per barrel. The yield on US ten-year treasuries has firmed to 2.31% and the German ten-year bund yield is weaker at 0.36%.

Equities in Asia are mixed: the CSI 300 is up by 0.4% and the Nikkei is up 0.1%, the ASX 200 is little changed and the Hang Seng and Kospi are both off 0.1%. This follows another record high being set on the Dow yesterday at 23,002.20, closing up 0.18% at 22,997.44; while in Europe the Euro Stoxx 50 closed up by 0.04% at 3,607.77.

The dollar index is pushing ahead with its latest rebound with the index at 93.60, after a recent dip to 92.75. The euro is weaker at 1.1752, as are sterling at 1.3170 and the yen at 112.42, while the Australian dollar is consolidating at 0.7840.

The Chinese yuan has been weaker in the past few days, recently quoted at 6.6211, while the other emerging currencies we follow are generally consolidating with a slightly weaker bias, although the Mexican peso is recouping some of its recent weakness.

Data out today included data on the UK employment situation, with US data including building permits, housing starts, crude oil inventories the Beige book and the federal budget balance. In addition, ECB president Mario Draghi and Federal Open Market Committee, FOMC, members William Dudley and Robert Kaplan are speaking.

Scale up selling has hit copper after Tuesday’s run up to $7,177 per tonne and the other metals that were struggling to push higher have also fallen, with zinc, lead and tin being the hardest hit, while nickel prices have held up well. We should now get an update on how bullish underlying sentiment is by seeing how far prices pull back and how long it is before they rebound again. So far, copper’s pullback has been limited, with prices off 2.1% from Tuesday’s high. Our view of late has been to remain quietly bullish, but expect trading to become choppier when prices run into more bouts of scale-up selling – as indeed we seem to be experiencing.

The firmer tone in gold, silver and platinum prices has run out of steam and with the dollar trying to push higher and equities hitting new highs, the opportunity cost of holding gold is high, especially while the North Korean situation seems to be calmer, at least for now. Palladium set a fresh high on Tuesday, but prices are now consolidating – there is a risk of a double top on the chart, but it is too early to say that will turn out to be the case as the uptrend still looks robust.

 

Overnight Performance
BST	07:11	+/-	+/- %	Lots
Cu	7009	-31	-0.4%	2726
Al	2127.5	-14.5	-0.7%	1616
Ni	11710	-60	-0.5%	1334
Zn	3078	3.5		2123
Pb	2478	-17.5	-0.7%	668
Sn	20420	30	0.1%	51
	Average		-0.3%	8,518
Gold	1283.75	-1.7	-0.1%
Silver	16.999	-0.036	-0.2%
Platinum	929	-3	-0.3%
Palladium	985.9	6.9	0.7%
	Average PM		0.0%

SHFE Prices 07:11 BST	RMB	Change	% Change
Cu	54790	-620	-1.1%
AL	16120	-305	-1.9%
Zn	25125	-730	-2.8%
Pb	19620	-715	-3.5%
Ni	94030	-210	-0.2%
Sn	145980	-1340	-0.9%
Average change (base metals)			-1.7%
Rebar	3730	-43	-1.1%
Au	276.6	-1.15	-0.4%
Ag	3903	-17	-0.4%
Iron Ore (DCE) Jan’18	461.5	5	1.1%

Economic Agenda
BST	Country	Data	Actual	Expected	Previous
9:10am	EU	ECB President Draghi Speaks
9:30am	UK	Average Earnings Index 3m/y		2.1%	2.1%
9:30am	UK	Claimant Count Change		1.3K	-2.8K
9:30am	UK	Unemployment Rate		4.3%	4.3%
1:00pm	US	FOMC Member Dudley Speaks
1:00pm	US	FOMC Member Kaplan Speaks
1:30pm	US	Building Permits		1.25M	1.27M
1:30pm	US	Housing Starts		1.18M	1.18M
3:30pm	US	Crude Oil Inventories		-4.7M	-2.7M
7:00pm	US	Beige Book
Tentative	US	Federal Budget Balance		-0.9B	-107.7B

 

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