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Gold prices drift as dollar rebounds

Precious metals prices are consolidating and given the recent strength in industrial metals, the dollar and equities, the ability of gold prices to only drift lower is noteworthy. Gold prices were recently quoted at $1,224.40 per oz, the low on Monday February 13 was $1,219.05 per oz, that after a high of $1,244.80 per oz a week ago.

Base metals prices on the London Metal Exchange are up an average of 0.2% this morning, Wednesday February 15, three-month copper prices are off 0.1% at $6,039 per tonne, while the rest are positive, led by a 0.7% gain in tin prices to $19,925 per tonne.

Volume has been lighter with 5,979 lots traded as of 06:58 GMT. Consolidation seems to be the order of the day, especially in those metals that have raced higher in recent days, notably copper, aluminium, lead and zinc, while tin and nickel which are recovering from recent weakness are holding up well. In Shanghai, the base metals on the Shanghai Futures Exchange are off 0.8% on average this morning, the weakness is led by copper prices that are off 2.1% at 48,870 yuan per tonne and lead that is down 1.8%. Zinc and tin prices are off 0.9%, while nickel prices are up 0.2% and aluminium is up 0.7%. Spot copper prices in Changjiang are off 1.3% at 48,760-48,880 yuan per tonne, suggesting that prices have weakened as the day has progressed. The LME/Shanghai copper arb ratio is at 8.09.

In other metals in China, May iron ore prices on Dalian Commodity Exchange are off 1.3%, on SHFE steel rebar prices are unchanged, while gold and silver prices are little changed. In international markets, spot Brent crude oil prices are off 0.1% at $55.71 per barrel.

Equities were buoyant yesterday fuelled by stronger price data around the globe that suggests economies are doing well. The Euro Stoxx 50 closed up 0.1% and the Dow closed up 0.5%. US Fed chair Janet Yellen’s testimony that the Fed did not need to wait for details of US president Donald Trump’s fiscal plans before they tighten interest rates was seen as a positive as it suggests the Fed sees the US economy as being robust. Markets in Asia are generally firmer with the Nikkei and Hang Seng up 1%, the ASX 200 is 0.9% firmer, the Kospi is up 0.4%, while the CSI 300 is off 0.4%.

In FX, the dollar index is trending higher again, it was recently quoted at 101.30, this after a low on February 2 of 99.23. The question is was the pullback from highs at 103.82 on January 3, just a bullish flag and another up-leg is getting underway, or is this latest rebound just a counter trend move within a downward trend that started at the beginning of the year? Given the likelihood of further interest rate rises this year, the interest rate differentials are likely to drive the dollar higher, that is if the rises have not already been anticipated and therefore already in the price. The trend in the euro is to the downside, it was recently quoted at 1.0578, the yen at 114.52 is weakening as is sterling at 1.2461, while the Australian dollar is firm at 0.7674.

In emerging market (EM) currencies, the yuan is consolidating around 6.8545, the real and rand are extending gains and the other EM currencies we follow are looking strong. This suggests little concern about the prospects of higher US interest rates and a climate of risk-on, which bodes well for metals prices.

The economic agenda is very busy today starting with UK employment data, UK leading indicators, the EU trade balance, and a mass of US data including CPI, retail sales, Empire State manufacturing data, industrial production, capacity utilisation, business inventories, NAHB housing market index, crude oil inventories and TIC long term purchases. In addition, US Fed chair Yellen is testifying in front of the Financial Services Committee and US Federal Open Market Committee member Patrick Harker is speaking – see table below for more details.

The underlying trends on most of the base metals is to the upside but as prices reach levels not seen for many months it stands to reason that they will run into scale-up sell-orders from forward sellers. As this selling is absorbed, prices will tend to consolidate or pullback – this is what we see as happening in the leading metals. While for tin and nickel, adjusting for the recent supply news developments led to sell-offs, but bargain-hunting seems have turned the tide to the upside once again. As such we remain generally bullish on the base metals.

Gold is holding up well considering the risk-on appetite and gains in other asset classes, dips should be expected as weak longs take profits, but given the potential for geopolitical shocks and developments, we expect gold will remain a sought after haven and a rotation into commodities, including commodity baskets, will also see gold well supported, we think.

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

Overnight Performance
GMT 06:58 +/- +/- % Lots
Cu 6039 -9 -0.1% 2391
Al 1894 7 0.4% 1475
Ni 10805 15 0.1% 1135
Zn 2905.5 5.5 0.2% 758
Pb 2367.5 2.5 0.1% 193
Sn 19925 135 0.7% 27
  Average   0.2%        5,979
Gold 1225.8 -2.5 -0.2%  
Silver 17.916 -0.024 -0.1%  
Platinum 998.2 1.2 0.1%  
Palladium 778.9 0.9 0.1%  
  Average PM   0.0%  


SHFE Prices 06:58 GMT RMB Change % Change
Cu 48870 -1070 -2.1%
AL 14305 95 0.7%
Zn 23670 -210 -0.9%
Pb 19410 -350 -1.8%
Ni 89660 180 0.2%
Sn 148730 -1330 -0.9%
Average change (base metals) 0   -0.8%
Rebar 3419 0 0.0%
Iron ore 697.5 -9.5 -1.3%
Au 274.95 -0.3 -0.1%
Ag 4218 -4 -0.1%


Economic Agenda
GMT Country Data Actual Expected Previous
9:30am UK Average Earnings Index 3m/y   2.8% 2.8%
9:30am UK Claimant Count Change   1.1K -10.1K
9:30am UK Unemployment Rate   4.8% 4.8%
10:00am EU Trade Balance   22.5B 22.7B
1:30pm US CPI m/m   0.3% 0.3%
1:30pm US Core CPI m/m   0.2% 0.2%
1:30pm US Core Retail Sales m/m   0.4% 0.2%
1:30pm US Retail Sales m/m   0.1% 0.6%
1:30pm US Empire State Manufacturing Index   7.2 6.5
2:15pm US Capacity Utilization Rate   75.6% 75.5%
2:15pm US Industrial Production m/m   0.1% 0.8%
2:30pm UK CB Leading Index m/m     0
3:00pm US US Fed Chair Yellen Testifies      
3:00pm US Business Inventories m/m   0.5% 0.7%
3:00pm US NAHB Housing Market Index   68 67
3:30pm US Crude Oil Inventories   3.7M 13.8M
5:45pm US US FOMC Member Harker Speaks      
9:00pm US TIC Long-Term Purchases   19.1B 30.8B