Gold prices break higher, base follow
LONDON (Aug 16) The metals tried higher in early trading yesterday and silver, platinum and lead, made headway above recent highs in early trading, but then pulled back as better US initial jobless claims sent the metals lower as it was seen to give the Fed more room to be hawkish over the timing of QE-tapering. This was then followed by disappointing data that reduced the concern over tapering and metals picked-up again into the close.
The base metals were up just 0.4 percent at the day’s highs, they went on to close up 0.1 percent on average, with copper up 0.4 percent at $7,353.75.
Bullion did much better - gold and silver burst into activity at around 5:30pm with gold overcoming key resistance at $1,348.75 to reach $1,370 and silver followed, reaching $23.21.
This morning the base metals have done some catching up, they are up an average of 0.7 percent , with gains varying between 0.4 percent for copper and 0.9 percent for nickel and what is more volume has been very strong with 20,239 lots traded by 07:08 BST. It would appear that the action in bullion has boosted sentiment across the board.
Precious metals have been active overnight, but there seems to have been two-way action as on a net basis they are unchanged with silver up 0.4 percent at $23.03, gold is unchanged at $1,364.70, platinum is up 0.2 percent at $1,526 and palladium is off 0.5 percent at $755.
In Shanghai the base metals are up an average of 1.1 percent, lead is up the most with a 1.8 percent gain to Rmb 14,850, followed by zinc that is up 1.4 percent at Rmb 15,135, copper is up 1 percent at Rmb 52,910 and aluminium is lagging behind with a 0.3 percent gain to Rmb 14,470. Rebar is bucking the trend with a 1.4 percent drop to Rmb 3,696.
Spot copper in Changjiang is up 1.3 percent at Rmb 53,150-53,600, which puts the backwardation with the futures out at an equivalent of some $155/tonne and the LME/Shanghai copper arb ratio has narrowed further to 7.13 that suggests that the stronger copper prices is not attracting, or indeed being driven by a pick-up in imports into China.
Gold and Silver in Shanghai climbed aggressively with silver up 5.5 percent to Rmb 4,625/kg and gold was up 2.9 percent at Rmb 3,696/g.
Equities in the West yesterday were under pressure, again on the back of concerns over QE tapering that saw the Euro Stoxx 50 fall 0.6 percent and the Dow close down 1.5 percent – US treasuries also fell – the combination of that may well have prompted some safe-haven buying in bullion as money rotated out of those asset classes and back into bullion. Equities in Asia are mixed, the Nikkei is down 0.8 percent as there has been no follow up confirmation that the government is looking to reduce corporation tax, the Hang Seng is off 0.3 percent, the Kospi is down 0.2 percent and China’s CSI 300 is little changed.
Currencies – the dollar was choppy yesterday with the dollar index initially jumping on the back of the jobless data to 81.93 from around 81.50, but then fell to a low of 81.09 later in the afternoon - it is last at 81.29. The euro is stronger, last at 1.3335, as are cable at 1.5624, the aussie at 0.9154 and the yuan at 6.1111, while the yen is treading water around the 97.60 area.
The economic agenda is busy today with EU CPI, current account and trade balance data out, while in the US we get housing starts, non-farm productivity, unit labour costs and the University of Michigan consumer sentiment and inflation expectations – see table attached for more details.
For now bullion seems to be in the spotlight – there has a significant increase in chatter about bullion in recent days and the move higher in gold above $1,348.75 has triggered a wave of buying/short-covering. With the dollar also failing to hold on to its gains following the release of the initial jobless claims data, the weaker dollar does seem to have lit a fire under the base metals too. Like gold, a number of the base metals were poised under important resistance levels, so it does look as though we are seeing strength on the back of dollar weakness, a pick-up in sentiment about China’s consumption and technical signals as resistance levels have been overcome.
It will now be interesting to see how the market handles these breakouts and how soon the selling steps in. On balance we feel sentiment has become a bit more bullish and that might well drive more short-covering, but we feel higher prices for the industrial metals will attract producer hedging.
