Gold holding up well on safe-haven interest

Otmane El Rhazi from The Bullion Desk.

Precious and base metals dropped an average of 3.4 percent yesterday with losses ranged from 6.5 percent for nickel and 0.8 percent for gold, with copper closing down 2.2 percent at $4,950, having earlier been off 4.1 percent to $4,855. The weakness was part of broad based sell-off that had started with Chinese equity markets falling around 8 percent on Monday that saw the Euro Stoxx 50 drop 5.4 percent and the Dow close down 3.6 percent. In the early hours this morning, some stability has returned – we wait to see that lasts.

This morning the base metals are up an average of 0.9 percent, tin leads the way with a 2.5 percent gain to $14,400, the rest are up between 0.3 percent for zinc and 0.8 percent for copper, which is at $4,990. Volume has been higher with 6,189 lots traded as of 6:06 BST.

Precious metals are mixed, palladium is off 1.3 percent at $558.70, the rest are up between 0.2 percent for gold ($1,153.80) and 0.7 percent for silver ($14.90), while platinum is up 0.3 percent at $985. The gold/silver ratio is at 77.34 after a peak yesterday of 79.26, while platinum is now at a $169 discount to gold.

In Shanghai, the base metals are mixed with nickel, tin and zinc down, 3.5, 2.0 and 0.4 percent respectively, while copper is up 1.7 percent at Rmb 38,970, lead is up 0.6 percent and aluminium is unchanged. We note that it is the metals tied in with steel that are suffering – this could be due to the production limits put on steel makers as Beijing tries to reduce pollution while the World Athletics Championships are on – they run until August 30.

Spot copper in Changjiang is up 1.7 percent at Rmb 39,050-39,200, the backwardation with the October contract is at an equivalent of $35 per tonne, while the LME/Shanghai copper arb ratio is at 7.92 that means the arb window is open.

In other metals in Shanghai, gold is unchanged, silver is off 1.2 percent, steel rebar is down one percent and iron ore was last down $2.8 at around $53.20.

Equities this morning are mixed, the CSI 300 is still falling, last down around 4 percent, the Nikkei is off 1.2 percent, the Hang Seng is up 0.9 percent, the Australian ASX 200 is up 2.7 percent and the Kospi is up 1.1 percent. With China still falling, we wait to see if other markets can diverge away from China.

Currencies – the dollar index has fallen hard in recent days, dropping to a low of 92.56 as the market turmoil has made traders feel the Fed is less likely to initiate its rate rises in September. It is attempting to rebound today, last at 93.59. Conversely the euro has shot higher, last at 1.1567 after a peak yesterday of 1.1705, sterling has been slower to rise, but is last at 1.5766, the yen rallied strongly yesterday, but is now consolidating around 119.24, the aussie dropped to a low of 0.7048 yesterday, but is today rebounding, last at 0.7181 and the rouble is weak at 69.90. The yuan is last at 6.4820, the rupiah, rupee, real and rand are all trending lower.

Data out today showed China’s leading indicators came in better that expected, but the previous reading was revised lower. Later we get German final GDP, the Ifo business climate index and US data includes HPI, flash services PMI, consumer confidence, new home sales and Richmond manufacturing index. Given the jittery market we would expect the market to be looking for good data to help restore confidence.

The base metal spiked lower again yesterday and some buying has been tempted to take advantage of that, but the overall trends remain bearish and until some confidence returns to the broader market we do not envisage robust enough buying to turn the trends. That said, the base metals are vulnerable to short-covering that could unfold at any time. The strong rebound in Shanghai copper prices, looks encouraging – we wonder whether the SRB are at work. Given many metal prices are now deep into marginal producers cost curves, the main exception being copper, we feel these low metal prices will be seen as offering value, once the fear factor subsides. While writing this report the early signs of strength have faded, base metals are now now up just 0.1 percent on average, having an hour ago been up 0.9 percent.

Gold is out on its own in the metals complex, it is finding safe-haven buying and that in turn is likely to be prompting short-covering. Whether it can continue on its own remains to be seen, especially considering how out of favour it has been in recent quarters. Silver tried to keep up with gold, but its industrial attributes are acting as a dragging anchor, platinum is in the same boat as silver, while palladium continues to sink. The PGMs seem to be getting extremely oversold, but perhaps the falling rand and rouble are delaying supply responses.

 

Overnight Performance
BST	06:06	+/-	+/- %	Lots
Cu	4990	40	0.8%	3220
Al	1537	9	0.6%	1112
Ni	9590	70	0.7%	624
Zn	1723.5	4.5	0.3%	1023
Pb	1666.5	6.5	0.4%	173
Sn	14400	345	2.5%	37
Steel	300	0	0.0%	Total
	Average (BM ex-Steel)		0.9%	6189
Gold	1153.8	2.2	0.2%
Silver	14.9	0.11	0.7%
Platinum	985	3	0.3%
Palladium	558.7	-7.3	-1.3%
	Average PM		0.0%

 

SHFE Prices 6:06 BST		Change	% Change
Cu	38970	640	1.7%
AL	11885	0	0.0%
Zn	14440	-55	-0.4%
Pb	13215	85	0.6%
Ni	75760	-2730	-3.5%
Sn	101580	-2110	-2.0%
Average change (base metals)	236.5		-0.6%
Rebar	1949	-20	-1.0%
Au	240.6	-0.05	0.0%
Ag	3417	-42	-1.2%

 

Economic Agenda
BST	Country	Data	ACTUAL	Expected	Previous
3:00am	china	CB Leading Index m/m	0.9%		0.6%
7:00am	Germany	German Final GDP q/q		0.4%	0.4%
9:00am	Germany	German Ifo Business Climate		107.6	108
2:00pm	US	HPI m/m		0.4%	0.4%
2:00pm	US	S&P/CS Composite-20 HPI y/y		5.1%	4.9%
2:45pm	US	Flash Services PMI		54.1	55.7
3:00pm	US	CB Consumer Confidence		92.8	90.9
3:00pm	US	New Home Sales		512K	482K
3:00pm	US	Richmond Manufacturing Index		9	13

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