Gold prices consolidate recent gains, expect increased volatility around the French election

Apr 21, 2017 - 9:54 AM GMT
by

FastMarkets

Gold and the rest of the precious metals prices are little changed this morning, Friday April 21, with spot gold prices at $1,280.13 per oz. This comes after a mixed performance on Thursday that saw spot gold prices climb 0.2%, silver prices drop 0.7%, while the PGMs were strong with platinum prices up 1.2% to $975 per oz and palladium prices rose 3.5% to $802 per oz.

Base metals prices have managed to generally build on the gains from Thursday with three-month London Metal Exchange prices up an average of 0.4%, this morning.

Lead prices lead the way with a 0.9% rise, while tin prices buck the trend with a 0.5% drop to $19,810 per tonne, while the rest are up between 0.3% for nickel and 0.8% for zinc. Copper prices are up 0.4% at $5,657 per tonne. Volume has been above average with 7,249 lots traded as of 06:42 BST

Sentiment in China has tended to be bearish in recent weeks, but today was an up day across the board with prices up an average of 1.2%, led by a 3% rally in zinc prices. Tin lagged behind with a 0.2% gain, while the rest were up between 0.6% for lead and 1.2% for aluminium. Copper was up 0.9% at 45,860 yuan per tonne. Spot copper prices in Changjiang are up 0.5% at 45,720-45,920 yuan per tonne and the LME/Shanghai copper arb ratio was trading around 8.11. We mentioned in Thursday’s report that there were some reports of some arb trading on Wednesday, so with prices rebounding today some bargain hunting may be materialising.

In other metals in China, September iron ore futures have rebounded strongly with gains of 7.3% on the Dalian Commodity Exchange, while on the Shanghai Futures Exchange, steel rebar prices are up 3.5%, gold prices are little changed and silver prices are off 0.8%. In international markets, spot Brent crude oil prices are little changed at $52.98 per barrel and the yield on the US ten-year treasuries is slightly firmer at 2.24%.

Equities also took on a firmer tone on Thursday with the Euro Stoxx 50 closing up 0.6% and the Dow closed up 0.9% at 20,578. Asia this morning has generally seen follow through buying, with the Nikkei up 1.1%, helped by a weaker yen, the Kospi is up 0.8%, the ASX 200 is up 0.7%, the Hang Seng is up 0.1%, while the CSI 300 bucks the trend with a 0.3% drop.

The dollar index at 99.81 is slightly firmer than this time on Thursday as US Treasury Secretary Steven Mnuchin breathed life back into US president Donald Trump’s reflation trade. This weighed on other currencies with the euro slipping to 1.0713, sterling’s rally has paused at 1.2809 and the yen has eased to 109.37, while firmer iron ore prices has given the Australian dollar, at 0.7534, some strength. In emerging market (EM) currencies, the yuan is flat at 6.8832 and most of the other EM currencies we follow are holding within recent ranges.

The economic agenda is busy today, Japan’s flash manufacturing PMI climbed to 52.8 from 52.4. Later there is PMI data out across Europe and the US, plus data on the EU current account, UK retail sales and US existing home sales. Speakers include UK Monetary Policy Committee member Michael Saunders and US Federal Open Market Committee member Neel Kashkari, it is also day one of an International Monetary Fund meeting. Although there is no flash Chinese PMI data out, the update on manufacturing in Europe and the US should provide further insight into how the global economy is doing.

Dip-buying appears to have emerged into the recent weakness in base metals prices, this fits in with our overall view to remain mildly bullish for the complex. What will be interesting now is to see if there is follow through buying and whether that starts to unnerve the shorts that have added to positions in recent weeks. Political uncertainty in the short term may keep potential buyers on hold.

Gold prices are consolidating recent gains as higher prices are unsurprisingly prompting some profit-taking, as at the end of the day Marine Le Pen is unlikely to be the next French president, but given the surprise over Brexit and the US election, there will be a lot of uncertainty and nervousness until the final vote is known. As such, we expect increased volatility in the days and weeks ahead, especially as other geopolitical events are running in parallel. Silver, platinum and palladium, are generally holding up well, although they too have seen some profit-taking. The strong rebound in palladium suggests strong underlying demand.

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