Gold prices up on heightened political and geopolitical concerns

Apr 13, 2017 - 8:40 AM GMT
by

FastMarkets

Gold and silver prices are consolidating, down 0.2% and 0.1% respectively this morning, Thursday April 13, with spot gold prices at $1,283.92 per oz, having been as high as $1,288, while the PGMs are up around 0.2%. However on Wednesday, gold and silver prices climbed 0.9%, platinum prices were up 0.4%, while palladium prices dropped 0.5%.

The base metals are rebounding this morning after what has been a week or so of weaker prices. On average the base metals are up an average of 1.4%, spread between gains of 1.1% for aluminium and 1.8% for tin, with three-month copper prices up 1.6% at $5,714 per tonne. Volume has been strong with 10,537 lots traded as of 06:45 BST. This comes after a 1.2% average drop on Wednesday. The question now is whether today’s rebound was short-covering ahead of the long Easter weekend or whether dip-buying has started.

In Shanghai this morning, base metals prices are mixed, copper prices are down 0.9% at 46,200 yuan per tonne, nickel prices are down 1%, aluminium and tin prices up 0.2%, while lead prices are up 1% and zinc has rebounded 2.1%. Spot copper prices in Changjiang are down 1.4% at 45,820-46,020 yuan per tonne and the LME/Shanghai copper arb ratio has weakened again to 8.06, which indicates the rebound has so far been seen in LME prices more than in Shanghai – again this could be a sign of short-covering as the LME will be closed on Friday and Monday.

In other metals in China, September iron ore futures have rebounded after earlier weakness, they are up 0.5% on the Dalian Commodity Exchange, while on the Shanghai Futures Exchange, steel rebar prices are up 0.4%, gold prices are up 0.7% and silver prices are up 1.1%. In international markets, spot Brent crude oil prices are up 0.5% at $55.84 per barrel and the yield on the US ten-year treasuries has eased further to 2.24%, another sign that money is shifting to safety.

Equities were slightly weaker on Wednesday with the Euro Stoxx 50 closing down slightly, while the Dow closed down 0.3% at 20,591. This morning, Japan is showing more concern as the stronger yen hurts exporters, which has seen the Nikkei drop 0.7%. The ASX 200 is weaker by 0.8%, the CSI 300 and Hang Seng are up 0.2% and the Kospi is up 0.7%.

The dollar index accelerated lower following comments from US President Donald Trump that he thought the dollar had risen too much since his election victory, the index has fallen to 100.08. The euro has rebounded recently at 1.0672, as has the Australian dollar at 0.7594, while the sterling at 1.2570 and the yen at 109.04 are rallying.

In emerging markets, the yuan has rebounded, it was recently quoted at 6.8700 and most other emerging market currencies are strengthening too – all a countermove against a weaker dollar, but also suggests a rebound in confidence, which may well help to continue support a rebound in the metals too.

Data out already showed a pick-up in China’s trade surplus with exports and imports both picking up, which suggests a healthier global economy. Later there is data out on CPI in France and Germany, leading indicators in the UK, with US data showing PPI, University of Michigan consumer sentiment and inflation expectations and natural gas storage – see table below for more details.

The base metals have been on a back footing with prices pulling back to test support levels, many of which have given way, this has especially been the case in zinc and copper where prices fell to levels not seen since early-January. Given the loss of upward momentum since February it is not so surprising that stale long liquidation has been seen and the drifting trends have attracted some short selling too. The higher prices earlier in the year had attracted scrap and hoarded metal out of the woodwork, which will have needed to be absorbed – another reason why prices have been capped in recent months.

Key now will be whether bargain hunting starts to emerge, we are after all still in the early stages of the seasonally strong second quarter. Also with Trump and Chinese president Xi Jinping, appearing to have had constructive meetings last week, it seems less likely that trade wars will materialise, which again will help foster global growth. As such, we remain quietly bullish for the base metals.

Gold prices remain strong as geopolitical tensions are running higher and because the countdown to the French presidential election is now on, with the first round on April 23. Silver prices broke higher on Wednesday, while the PGMs are back at the higher levels of their recent ranges.

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