Base metals tried lower on Wednesday but the sell-off did not gather momentum and for the most part the metals closed firmer – the exception being tin that dropped 1.1 percent – the others were up an average of 0.3 percent. The weaker dollar was one of the more supportive factors while a 0.2 percent rise US GDP number was a disappointment and a weight on the dollar.
Bullion prices benefited from the weaker dollar, at least initially, but palladium was the only metal to hold on to gains, it rose 0.8 percent to $780, while the rest were lower by an average of 0.3 percent with gold closing at $1,205.20 – there is evidence of supply around the $1,214 level in gold, just ahead of the $1,215 neckline of a potential inverse head and shoulder pattern.
This morning the base metals are mixed – nickel leads on the upside with a 0.7 percent rise to $13,550, aluminium is up 0.2 percent, tin is down 0.4 percent, while the rest are little changed with copper at $6130 – volumes have been light with 2,601 lots traded.
Precious metals are weaker across the board with prices off an average of 0.3 percent – given the weaker dollar it is surprising prices are not rallying – perhaps too much expectations was already built into the price. We still feel gold’s engine is revving, but the handbrake is on.
In Shanghai, the June base metals contracts are mixed, but the bulk are firmer led by nickel that is up 1.4 percent, while tin is off 0.4 percent, aluminium is off 0.2 percent, lead and zinc are both up 0.3 percent and copper is up 0.5 percent at Rmb 44,210. Steel rebar is off 0.8 percent and iron ore prices have turned lower to $56.90 from a recent high around $59.20 and after a strong rebound through April.
Spot copper in Changjiang is up 0.5 percent to Rmb 44,300-44,420, the spread with the futures remains around an equivalent of $33 per tonne backwardation, while the LME/Shanghai copper arb ratio is at 1 to 72.5 suggests the arb window is closed.
Bullion prices in Shanghai are lower with gold off 0.5 percent and silver is off 0.6 percent.
Equities came under pressure yesterday with the Euro Stoxx 50 dropping 2.7 percent as the disappointing US GDP number hit sentiment, the Dow, S&P and Nasdaq closed off between 0.4 and 0.6 percent. Stocks in Asia are mixed, the Nikkei is off 2.6 percent, the Hang Seng is off 0.8 percent, the Kospi is off 0.6 percent, but the CSI 300 is bucking the trend with a 0.7 percent gain.
The dollar index broke key support at 96.16 yesterday to set a low at 94.67, in our view the dollar index is now trending lower as it undergoes a long overdue correction and with the FOMC now likely on hold until at least September, possibly for longer, we feel the market will realise the dollar had run ahead of the fundamentals. That said, whether other currencies should be rising is a moot point, but they are on the back of dollar weakness with the euro at 1.1095, sterling is strong as it goes into next week’s general election, it is at 1.5411, the aussie is at 0.7979, the yen is at 118.58, the yuan at 6.1988 and the rouble is flat at 50.70.
The FOMC statement suggested no rate rise in June, but their view that the economic weakness in the US was ‘transitory’ in nature left the door open for rate rises later in the year and that undermined the likes of gold. Today’s economic agenda is extremely busy, it started with Japan’s industrial production number dropping just 0.3 percent, it had been expected to fall 3.4 percent, while Japan’s housing starts were also better than expected, they climbed 0.7 percent. Data out in Europe includes a range of unemployment and CPI data, German retail sales, French consumer spending, Spanish GDP, while US data includes initial jobless claims, personal spending and income, Chicago PMI and natural gas storage. In addition, FOMC member Daniel Tarullo is speaking – see table below for more details.
The base metals for the most part are still looking upwards with copper tackling resistance ahead of $6,200, indeed copper is the laggard. Aluminium and nickel are playing catch-up with lead and zinc that are holding up well after their strong gains since mid-March and tin is consolidating after its sharp rebound. The weaker dollar is likely to provide further strength in the short term, but the economic data out of the US, combined with global economic weakness are at the end of the day do not bode well metal demand.
The precious metals should be heading higher we would have thought given the dollar’s break lower, the fact they are not (at least yet) shows that confidence in the metals is weak. It almost looks as though the market is looking for excuses not to rally hence the market hanging on the Fed’s ’transitory’ word. With equities looking weaker and the dollar on the decline, we would not be surprised to see investors looking to protect their wealth viewing gold as a ‘relatively’ cheap safe-haven.
| Overnight Performance | ||||
| BST | 06:06 | +/- | +/- % | Lots |
| Cu | 6130 | -3.5 | -0.1% | 1120 |
| Al | 1885.5 | 3.5 | 0.2% | 288 |
| Ni | 13550 | 95 | 0.7% | 661 |
| Zn | 2296.5 | -3.5 | -0.2% | 454 |
| Pb | 2097 | 1 | 0.0% | 77 |
| Sn | 15655 | -70 | -0.4% | 1 |
| Steel | 395 | 0 | 0.0% | Total |
| Average (BM ex-Steel) | 0.0% | 2,601 | ||
| Gold | 1202.7 | -2.5 | -0.2% | |
| Silver | 16.49 | -0.07 | -0.4% | |
| Platinum | 1149.4 | -1.6 | -0.1% | |
| Palladium | 777.5 | -2.5 | -0.3% | |
| Average PM | -0.3% | |||
| SHFE prices 06:22 BST | Change | % Change | |
| Cu | 44210 | 240 | 0.5% |
| AL | 13310 | -30 | -0.2% |
| Zn | 16950 | 55 | 0.3% |
| Pb | 13765 | 40 | 0.3% |
| Ni | 103920 | 1480 | 1.4% |
| Sn | 116300 | -520 | -0.4% |
| Average change (base metals) | 0.3% | ||
| Rebar | 2259 | -19 | -0.8% |
| Au | 241.3 | -1.3 | -0.5% |
| Ag | 3601 | -20 | -0.6% |
| Economic Agenda | |||||
| BST | Country | Data | ACTUAL | Expected | Previous |
| 12:50am | Japan | Prelim Industrial Production m/m | -0.3% | -3.4% | -3.1% |
| 5:04am | Japan | Monetary Policy Statement | |||
| 6:00am | Japan | Housing Starts y/y | 0.7% | -1.8% | -3.1% |
| 7:00am | Germany | German Retail Sales m/m | 1% | 0% | |
| 7:00am | Japan | BOJ Outlook Report | |||
| Tentative | Japan | BOJ Press Conference | |||
| 7:45am | france | French Consumer Spending m/m | -0.5% | 0.1% | |
| 8:00am | Spain | Spanish Flash CPI y/y | -0.7% | -0.7% | |
| 8:00am | Spain | Spanish Flash GDP q/q | 0.8% | 0.7% | |
| 8:55am | Germany | German Unemployment Change | -14K | -15K | |
| 9:00am | EU | ECB Economic Bulletin | |||
| 9:00am | Italy | Italian Monthly Unemployment Rate | 12.6% | 12.7% | |
| 10:00am | EU | CPI Flash Estimate y/y | 0.0% | -0.1% | |
| 10:00am | EU | Core CPI Flash Estimate y/y | 0.6% | 0.6% | |
| 10:00am | EU | Unemployment Rate | 11.20% | 11.3% | |
| 10:00am | Italy | Italian Prelim CPI m/m | 0.20% | 0.1% | |
| 1:30pm | US | Unemployment Claims | 290K | 295K | |
| 1:30pm | US | Core PCE Price Index m/m | 0.20% | 0.1% | |
| 1:30pm | US | Employment Cost Index q/q | 0.6% | 0.6% | |
| 1:30pm | US | Personal Spending m/m | 0.6% | 0.1% | |
| 1:30pm | US | FOMC Member Tarullo Speaks | |||
| 1:30pm | US | Personal Income m/m | 0.20% | 0.4% | |
| 2:45pm | US | Chicago PMI | 50.10 | 46.3 | |
| 3:30pm | US | Natural Gas Storage | 79B | 90B |
The post Base metals latch on to dollar weakness, bullion not doing so yet appeared first on The Bullion Desk.
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