METALS MORNING VIEW 12/10: Gold prices rally while FOMC minutes seen as dovish

Base metals prices on the London Metal Exchange are consolidating this morning, Thursday October 12, with prices down an average of 0.2%.

Zinc and lead are both down the most (-0.5%), while three-month copper prices are little changed at $6,815 per tonne.

Volume has been lighter than in recent days, with 5,442 lots traded as of 06:33 BST.

This morning’s consolidation follows a divergent performance on Wednesday October 11 that saw nickel and copper prices up 1.3% and 0.9%, respectively, while zinc prices fell 2.2% because the high backwardation attracted more stock into warehouses. Aluminium prices fell 1.3% and lead and tin prices were mostly unchanged.

Gold, silver and platinum prices are up around 0.2%, with spot gold prices at $1,295.09 per oz, while palladium prices are off 0.1% at $958.80 per oz. This comes after a positive day yesterday where palladium prices rallied 2.8%, platinum prices rose 0.1% and bullion prices were up 0.3%

In Shanghai, copper and nickel prices are buoyant while the rest are weaker. Nickel prices are up 2.2%, while December copper prices are up 1.6% at 53,040 yuan ($8,047) per tonne. Spot copper prices in Changjiang are also firmer, up 1.6% at 53,450-53,600 yuan per tonne and the London/Shanghai copper arbitrage ratio is higher at 7.79, after 7.77 on Wednesday.

Zinc and tin prices are off the most, down 1.4% and 0.9%, respectively, with lead prices off 0.5% and aluminium prices off 0.2%.

In other metals in China, iron ore prices continue to weaken, off 2.3% at 430 yuan per tonne on the Dalian Commodity Exchange. Prices are down some 29.5% from the 609.50 yuan per tonne high seen in August. It seems the steel industry is destocking ahead of the government imposed winter cutbacks.

On the Shanghai Futures Exchange, steel rebar prices are up 0.2%, while gold and silver prices are up by 0.3% and 0.2%, respectively.

In international markets, spot Brent crude oil prices are off by 0.17% at $56.56 per barrel, the yield on US ten-year treasuries has eased to 2.33% as the US Federal Open Market Committee (FOMC) meeting minutes contained no surprises and, if anything, were slightly dovish.

The German ten-year bund yield is little changed at 0.46%.

Equities in Asia are up across the board, with the Kospi up by 0.5%, the ASX 200 and Hang Seng up by 0.4%, while the Nikkei, up by 0.3%, has reached a level unseen since 1996. Meanwhile, the CSI 300 is up 0.1%. This follows a stronger performance on Wednesday, where in the USA, the Dow closed up by 0.18% at 22,872.89, a fresh record high, while in Europe the Euro Stoxx 50 closed up by 0.24% at 3,607.39.

The dollar index is weaker again this morning at 92.82. The pullback is looking less like consolidation and more like the downward trend reasserting itself, although it is still too early to say if this is the case. It could be the index is tracing out a right hand shoulder of an inverse head and shoulder pattern, which would be bullish – if triggered.

As the dollar slides, other major currencies have strengthened, with the euro at 1.1877, sterling at 1.3259, the yen at 112.28 and the Australian dollar at 0.7821.

The Chinese yuan has become firmer in October but has been consolidating in recent days – it was recently quoted at 6.5876. The rand is firmer at 13.4942, while other emerging currencies are consolidating on a slightly firmer footing.

Data out already shows Japan’s producer price index (PPI) edged up to 3% from 2.9% in September, but tertiary industry activity dropped 0.2% from a previous reading of 0.1% in August.

Data out later includes French CPI, EU industrial production and a Bank of England credit conditions survey, while US data includes PPI, initial jobless claims and natural gas and crude oil inventories. Central bank speakers include ECB president Mario Draghi and FOMC members Lael Brainard and Jerome Powell.

Although the underlying trends in the base metals are upward, the metals in or near high ground are having to absorb selling, which is capping the upside and leading to some pullbacks. Copper and nickel prices that are still some way below their peaks seem to be working higher easily. We remain quietly bullish, but expect trading to become choppier when prices run into more bouts of scale-up selling.

All the precious metals are looking stronger again after they climbed yesterday – a weaker dollar and fairly dovish FOMC minutes are providing a tailwind for gold prices, which is providing lift to platinum and silver prices that had started to look oversold last week. The North Korea crisis seems to be simmering in the background, and any escalation in tension again is likely to fuel the rallies.

Overnight Performance
BST	06:33	+/-	+/- %	Lots
Cu	6815	1.5	0.0%	2141
Al	2136	1	0.0%	931
Ni	11175	-5	0.0%	871
Zn	3205	-16	-0.5%	1036
Pb	2545	-13	-0.5%	433
Sn	20775	-25	-0.1%	30
	Average		-0.2%	5,442
Gold	1295.09	2.74	0.2%
Silver	17.189	0.014	0.1%
Platinum	934.2	3.2	0.3%
Palladium	958.8	-1.2	-0.1%
	Average PM		0.1%

 

SHFE Prices 06:33 BST	RMB	Change	% Change
Cu	53040	840	1.6%
AL	16370	-40	-0.2%
Zn	25775	-360	-1.4%
Pb	20660	-100	-0.5%
Ni	89760	1950	2.2%
Sn	145150	-1330	-0.9%
Average change (base metals)			0.1%
Rebar	3574	7	0.2%
Au	277.2	0.70	0.3%
Ag	3906	7	0.2%
Iron Ore (DCE) Jan’18	430	-10	-2.3%

 

Economic Agenda
BST	Country	Data	Actual	Expected	Previous
12:01am	UK	RICS House Price Balance	6.0%	4.0%	6.0%
12:50am	Japan	Bank Lending y/y	3.0%	2.6%	3.2%
12:50am	Japan	PPI y/y	3.0%	3.0%	2.9%
5:30am	Japan	Tertiary Industry Activity m/m	-0.2%	0.1%	0.1%
7:45am	France	French Final CPI m/m		-0.1%	-0.1%
9:30am	UK	BOE Credit Conditions Survey
10:00am	EU	Industrial Production m/m		0.6%	0.1%
1:30pm	US	PPI m/m		0.4%	0.2%
1:30pm	US	Unemployment Claims		251K	260K
1:30pm	US	Core PPI m/m		0.2%	0.1%
3:30pm	EU	ECB President Draghi Speaks
3:30pm	US	FOMC Member Brainard Speaks
3:30pm	US	FOMC Member Powell Speaks
3:30pm	US	Natural Gas Storage		74B	42B
4:00pm	US	Crude Oil Inventories		-1.9M	-6.0M

 

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