Base metals hold on to gains, gold price and dollar weaker

Otmane El Rhazi from The Bullion Desk.

The base metals put in a strong performance yesterday with average gains of 2.1 percent led by a 3.5 percent gain in nickel to $13,925 and a three percent gain in copper to $6,133.50. The weaker dollar and some better US economic data, which supported the view that the first quarter weakness was temporary, led o further short-covering judging by the tightness in many of the spreads where four out of six of the base metals have cash-to-threes that are backwardated.

Precious metals fell sharply, down an average of 1.5 percent, led by a 2.8 percent drop in silver to $16.10 and gold fell 1.8 percent to $1,183.70. The pullback was triggered by the better US initial jobless claims data and the price weakness happened despite the weakening dollar. The fact bullion is struggling to take advantage of the weaker dollar, shows investors’ interest remains weak.

This morning the base metals are consolidating and are showing little change, which is a sign of continuing strength after yesterday’s show of strength. Copper and aluminium are off just 0.2 percent and lead is off 0.1 percent, while the rest are unchanged. Copper is last at $6,306. Volume has been light with 1,718 lots traded, but China and many other Asian markets are closed for May Day holidays.

Precious metals are mixed, silver has rebounded 0.5 percent to $16.18, the gold price is off 0.1 percent to $1,182.10 and the PGMs are little changed.

Markets in Shanghai are closed – so there will be some catching up to do on Monday should LME prices avoid correcting.

Equities – the Euro Stoxx 50 was little changed yesterday, although German bunds started to fall, which may well be on the back of hopes that negotiations with Greece run more smoothly now. Equities in the US, however, were lower with technology stocks leading the decline – the Dow was off 1.1 percent while he Nasdaq was off 1.6 percent.  In Asia this morning, the Nikkei is off 0.2 percent.

Currencies – the dollar continues to look weak, the dollar index is last at 94.99, it did reach a low of 94.39 early yesterday, but then found some underlying support especially after the US data. The euro reached 1.1266 yesterday, but is last at 1.1202, sterling is easing, last at 1.5340 after a high of 1.5498 on Wednesday, the yen is weaker at 119.75, the aussie has slipped too, last at 0.7895, the rouble is at 51.32, while the yuan is at 6.2018. With the dollar now very focused on US data in the run up to June’s FOMC meeting, we should expect a volatile period ahead.

The economic agenda is busy – China’s manufacturing PMI came in at 50.1, non-manufacturing PMI slipped to 53.4, Japan’s manufacturing PMI edged higher to 49.9, but household spending dropped 10.6 percent and CPI was mixed. Later we get UK manufacturing PMI, money supply and lending data and US data includes two sets of manufacturing PMI, University of Michigan consumer sentiment and inflation expectations, construction spending and total vehicle sales -  see table below for more details. Italy, Germany and France are closed for May Day holidays.

The base metals have a tailwind behind them with the weaker dollar a catalyst for firmer prices, which seems to have triggered short-covering and some seasonal buying. The rising tide is lifting all boats in the metals’ complex although the likes of lead and zinc are looking increasingly overbought in the short term so some red flags should be out. If we see further evidence of better US data then the US dollar could put in a rebound and that in turn could pour cold water on the metals’ rallies. For now the momentum is to the upside so we would expect further gains, especially those that have only recently started to rally, but we would be on the lookout for signs of producer hedge selling and profit-taking.

The precious metals are surprisingly weak, the gold market just does not seem to want to rise above $1,215, a few days ago a June Fed rate rise was all but off the table and few bits of better US data yesterday seems to have changed that mind set amongst bullion traders – we still feel the Fed will remain on hold for longer and expect the dollar correction to last longer too. As such, we feel gold may well have some catching up to do, especially if equities correct and investors are in need of a safe-haven.  

 

Overnight Performance
BST	06:43	+/-	+/- %	Lots
Cu	6306	-10	-0.2%	1091
Al	1916	-4	-0.2%	238
Ni	13925	0	0.0%	144
Zn	2341	0	0.0%	188
Pb	2112.5	-2	-0.1%	57
Sn	15925	0	0.0%	0
Steel	395	0	0.0%	Total
	Average (BM ex-Steel)		-0.1%	1,718
Gold	1182.1	-1.6	-0.1%
Silver	16.18	0.08	0.5%
Platinum	1141.9	0.9	0.1%
Palladium	776.8	-0.2	0.0%
	Average PM		0.1%

 

		Economic Agenda
BST	Country	Data	ACTUAL	Expected	Previous
12:30am	AUS	AIG Manufacturing Index	48.00		46.30
12:30am	Japan	Household Spending y/y	-10.6%	-11.7%	-2.9%
12:30am	Japan	Tokyo Core CPI y/y	0.4%	0.5%	2.2%
12:30am	Japan	National Core CPI y/y	2.2%	2%	2%
12:30am	Japan	Unemployment Rate	3.4%	3.5%	3.5%
All Day	China	Bank Holiday
2:00am	China	Manufacturing PMI	50.10	50.00	50.10
2:00am	China	Non-Manufacturing PMI	53.4		53.70
2:30am	AUS	PPI q/q	0.5%	0.2%	0.1%
2:30am	Japan	Average Cash Earnings y/y	0.1%	0.4%	0.1%
2:35am	Japan	Final Manufacturing PMI	49.9	49.8	49.7
All Day	France	French Bank Holiday
All Day	Germany	German Bank Holiday
All Day	Italy	Italian Bank Holiday
7:30am	AUS	Commodity Prices y/y			-19.7%
9:30am	UK	Manufacturing PMI		54.60	54.40
9:30am	UK	Net Lending to Individuals m/m		2.6B	2.5B
9:30am	UK	M4 Money Supply m/m		0.10%	-0.2%
9:30am	UK	Mortgage Approvals		63K	62K
2:45pm	US	Final Manufacturing PMI		54.20	54.20
3:00pm	US	ISM Manufacturing PMI		52.1	5150.0%
3:00pm	US	Revised UoM Consumer Sentiment		96.10	95.90
3:00pm	US	Construction Spending m/m		0.01	-0.001
3:00pm	US	ISM Manufacturing Prices		42.30	39.00
3:00pm	US	Revised UoM Inflation Expectations			2.5%
All Day	US	Total Vehicle Sales		16.9M	17.2M

 

 

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