METALS MORNING VIEW: Gold prices consolidate but remain vulnerable; eyes on dollar

Base metals prices on the London Metal Exchange are for the most part little changed this morning, Thursday October 5. The main exceptions are nickel prices that are up by 0.6% at $10,640 per tonne and tin prices that are off by 0.2% at $20,755 per tonne, while the rest are between plus and minus 0.1%, with three-month copper prices up by 0.1% at $6,517 per tonne.

With China on holiday all week, volume has been light in recent days, but it has been exceptionally light this morning with just 554 lots traded as of 07:07 BST.

Wednesday’s trading on the LME saw divergent performances, probably due to it being options declaration – lead prices fell 1.9%, having earlier set a fresh high for the year at $2,620.50 per tonne; nickel prices fell 1.4%; aluminium prices closed up 0.9%; while the rest were little changed, although tin did reach $20,800 per tonne at one stage during the day.

Precious metals prices are little changed this morning, ranged between up and down by 0.1%, with spot gold prices at $1,273.62 per oz. This follows a generally stronger day on Wednesday that saw palladium prices rise 0.8%, gold and platinum prices rise 0.2%, while silver bucked the trend with a 0.3% decline.

In international markets, spot Brent crude oil prices are little changed at $55.72 per barrel, the yield on US ten-year treasuries has edged higher to 2.33% and the German ten-year bund yield is a little firmer at 0.46%.

Most Asian equities are closed today and those that are open, the Nikkei and ASX 200, are little changed. This follows a mixed session on Wednesday, where in the USA, the Dow closed up by 0.09% at 22,661.64 – it set a fresh intraday record high at 22,646.32; and in Europe, where the Euro Stoxx 50 closed down 0.3% at 3,594.91.

The dollar index is consolidating at 93.54, it still needs to move above the August rebound peak of 94.15 to confirm that this is more than just a counter-trend move, we think. The euro is consolidating at 1.1755, as is the yen at 112.79; while sterling is weaker at 1.3233, as is the Australian dollar at 0.7822. Most emerging market currencies are consolidating at stronger levels after seeing a recent bout of weakness, following the show of strength in the dollar of late. If the dollar continues to head higher on the back of prospects for tighter monetary policy, then that could weigh on emerging market currencies.

On the economic agenda, there is data on the EU’s retail purchasing managers’ index (PMI), UK housing equity withdrawals, European Central Bank monetary policy meeting accounts as well as US data that includes Challenger job cuts, initial jobless claims, trade balance, factory orders and natural gas storage. In addition, US Federal Open Market Committee members Jerome Powell and Patrick Harker and UK Monetary Policy Committee members Ian McCafferty and Andrew Haldane are speaking.

Option declaration on Wednesday led to some volatility: aluminium was the main metal to push on with its rebound and hold on to gains; lead, zinc and nickel rallied but struggled to hold on to gains; while copper and tin prices continued to consolidate, the former in low ground and the latter in high ground. Overall, sentiment seems bullish again, to varying degrees, but liquidity is low without China’s involvement. We wait to see how China wades in next week, but ahead of that is US employment data out on Friday which is likely to determine the direction of the dollar and that is likely to influence the metals.

The weakness in precious metals prices has halted for now, but they remain vulnerable to further weakness as they are not getting much lift off recent lows. Most eyes will be on Friday’s US employment report as that is likely to set the tone and direction for the dollar, although the North Korean situation could kick off again at any time. Although we would not be surprised to see further weakness in the precious metals in the days ahead, we would continue to look for buying opportunities once a base seems to be in place.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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