The precious metals’ rebounds are consolidating today

Dec 21, 2017 - 8:20 AM GMT
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Precious metals are little changed this morning, with gold prices off by 0.1% at $1,265.71 per oz. Silver prices are unchanged, platinum prices are up by 0.1% and palladium prices up by 0.2%. This follows firmer price action on Wednesday, when the precious metals complex closed up 0.4%.

The precious metals’ rebounds are consolidating today – we saw the November weakness as the market again anticipating the December US interest-rate rise, as it did ahead of the rate rises in December 2015 and 2016. With geopolitical tensions low and with bond yields on the rise, gold prices are likely to face headwinds, but with US equities looking stretched, perhaps the recent weakness in gold prices has attracted a pick-up in interest in the yellow metal as an insurance against a correction in equities.

Base metals traded on the London Metal Exchange are consolidating this morning, Thursday December 21, with prices down an average of 0.1% and copper off by 0.3% at $7,027 per tonne.

Trading volumes have been average, with 6,986 lots traded as of 06.58 am London time. This comes after a generally strong performance on Wednesday that saw average gains of 0.7%. Lead was the only metal closing down on the day, it dropped 1.2% to $2,525 per tonne

On the Shanghai Futures Exchange today, base metals prices are generally firmer, with copper up by 1.2% at 54,280 yuan ($8,257) per tonne and nickel up 1.1%, while aluminium, zinc and tin prices are up by between 0.1% and 0.2%. Again, lead is bucking the trend with a 0.8% fall. Spot copper prices in Changjiang are up 0.9% at 53,800-53,940 yuan per tonne and the LME/Shanghai copper arb ratio is little changed at 7.72.

In other metals in China, iron ore prices are up by 0.9% at 532 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are up by 1.5%, while gold prices are down by 0.2% and silver prices are unchanged.

In international markets, spot Brent crude oil prices are up by 0.26% at $64.63 per barrel, the yield on US 10-year treasuries is stronger at 2.49%, while the German 10-year bund yield is also higher at 0.41%.

Equities in Asia today are mixed today, with the Kospi down by 1.72%, the Nikkei off by 0.11% and the ASX 200 down by 0.25%, while the Hang Seng is up by 0.51% and the CSI 300 is up by 0.93%.

This followed a weaker performance in western markets on Wednesday, where in the United States the Dow Jones closed down by 0.11% at 24,726.65 and in Europe the Euro Stoxx 50 closed down by 0.83% at 3,552.65. We are still waiting to see if the passing of the US tax bill prompts a ‘buy-the-rumor-sell-the-fact’ set-up, especially as there could also be profit-taking ahead of year-end given such a strong performance so far this year.

The dollar index at 93.38 this morning also seems to be struggling – perhaps the US tax bill is a negative for the dollar as it initially increases the budget deficit before the benefits are felt. But countering that, the US may be seen a stronger place politically now president Donald Trump has won his first major policy victory. The jury is still out as to whether the index is in an up trend or is in a continuation pattern within this year’s downward trend. 92.50 remains our ‘line in the sand’. The euro at 1.1866 is firmer, the Australian dollar is consolidating in high ground at 0.7661, while the yen is at 113.53, and sterling is at 1.3352.

The yuan is strengthening again and at 6.5735 is testing resistance that lies between 6.5675 and 6.5715. Indeed, earlier in the day it reached 6.5536. Other emerging currencies we follow are generally firmer, or are consolidating, the exception is the peso that may be wary of Trump’s policy success.

Economic data already out shows Japan has kept it monetary policy unchanged, while data out later includes the UK public sector borrowing requirement, with US final GDP, Philly Fed Manufacturing Index, initial jobless claims, final GDP prices, house prices, leading indicators and natural gas storage. There is also EU data on consumer confidence.

Base metals prices are rallying and seem to have shaken-off their bout of profit-taking/long liquidation that dominated in November. Lead prices suffered the least when the other metals were selling-off, so we should not be that surprised that they are not joining in to the same extent into the rebound. Without the nearby spreads tightening, it looks as though the rallies are being driven by fresh buying, which suggests that the underlying bullish fundamentals are re-exerting themselves.

We remain quietly bullish and continue to expect range-trading in high ground; it looks as though the base metals could put in a strong finish to 2017 in spite of low trading volumes.

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