Profit-taking in gold and a strong dollar weigh on metals prices

A cooler wind has blown through the base metals in recent days as resistance levels have proved effective in either stopping advances, or turning metals lower in the cases of copper, lead and nickel. A stronger dollar is one of the reasons, with the absence of China probably another. However, better economic data should be supportive for demand and the underlying up-trends still seem in place, so we would expect dips to be well supported.

Yesterday, the base metals closed mixed with three month prices down an average of 0.3 percent, with zinc and lead prices down around 1.4 percent, the rest were up between 0.1 percent for tin and copper price ($4,797) and 0.3 percent for nickel and aluminium prices.

Precious metals were mixed, the PGMs continued to fall, especially palladium prices that dropped 2.6 percent, it has, however, been by far the strongest price performer in recent weeks, platinum prices were off 0.8 percent  while gold and silver prices were little changed at $1,268.45 and $17.78 respectively – but both fell sharply on Tuesday.

This morning the base metals are mixed, aluminium prices are off 0.4 percent at $1,667, copper and zinc prices are off 0.2 percent with copper at $4,788, the nickel price is up 0.2 percent at $10,105 and lead and tin prices are little changed. Volume remains light at 1,459 lots, with aluminium and zinc trading the most.

Precious metals’ prices this morning are off around 0.2 percent on average, led by 0.3 percent declines in gold and silver prices, with gold last at $1,264.88, palladium’s prices is down 0.2 percent and platinum prices are little changed.

Equities were mixed yesterday with the Euro Stoxx 50 off 0.1 percent, this despite some better economic data, but good news may be starting to be interpreted as bad news if it enables the ECB to think about tightening monetary policy. The Dow closed up 0.6 percent, aided by stronger  PMI data. Asia is upbeat this morning with the Nikkei, Hang Seng and ASX 200 all up around 0.6 percent and the Kospi up 0.5 percent. – So again better economic data is cheering up prospects in Asia – although as it also means the Fed may get more hawkish there may be a counter reaction before long – let’s see what tomorrow’s US employment report looks like.

In FX, the dollar is firmer with the dollar index at 96.25, the euro is flat at 1.1200, sterling is weak on Brexit concerns, last at 1.2715, the yen is weak at 103.55 and the aussie is weaker too at 0.7598, as commodity prices are weaker. Emerging market currencies are generally holding up well considering the stronger dollar index, but the dollar’s strength is reflected more against developed countries’ currency weakness.

On the economic agenda data includes: Germany industrial orders, EU retail PMI, US Challenger job cuts and initial jobless claims – see table below for more details.

The base metals have run into resistance and the stronger dollar is no doubt influencing that as well as the sharp sell-off in gold and the precious metals, but we would expect dips to be well supported. This especially so, as there is some better economic news emerging, which should be good for the demand side of the equation.

The precious metals suffered a sharp sell-off on Tuesday, given the extended gross long fund positions and three months of little or no progress on the upside it is not surprising that stale long liquidation emerged. The lower prices may well prompt pent-up physical demand as well a encourage more investment bargain hunting. That said, if we continue to see better economic data then safe-haven buying may die-down for a while. We would expect choppy trading for a few days as the market adjusts to these lower prices and to Friday’s US employment report.

 

Overnight Performance
BST	06:19	+/-	+/- %	Lots
Cu	4788	-9	-0.2%	112
Al	1667	-7	-0.4%	683
Ni	10105	20	0.2%	73
Zn	2341	-4	-0.2%	482
Pb	2045	-1	0.0%	109
Sn	19925	0	0.0%
	Average		-0.1%	1,459
Gold	1264.88	-3.57	-0.3%
Silver	17.716	-0.059	-0.3%
Platinum	977.2	0.2	0.0%
Palladium	674.7	-1.3	-0.2%
	Average PM		-0.2%

 

Economic Agenda
BST	Country	Data	Actual	Expected	Previous
All Day	China	Bank Holiday
7:00am	Germany	Industrial Orders m/m		0.2%	0.2%
9:10am	EU	Retail PMI		51.2	51
9:30am	UK	Housing Equity Withdrawal q/q		-5.4B	-4.9B
12:30pm	EU	ECB Monetary Policy Meeting Accounts
12:30pm	US	Challenger Job Cuts y/y		23.9%	-21.8%
1:30pm	US	Initial jobless claims		257K	254K

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