Metals morning view: Precious metals prices weaker following dollar turnaround

Feb 21, 2018 - 8:40 AM GMT

Precious metals prices are weaker this morning, with the complex down an average of 0.2%. Spot gold prices are at $1,328.05 per oz. This follows a general day of weakness on Tuesday when the complex closed down an average of 0.7%, which was partially driven by a firmer US dollar index.

Another turn-around in the dollar has weighed on gold, especially as it happened when gold prices were once again challenging recent highs. Platinum is holding up relatively well, silver less so and palladium is consolidating after its latest half-hearted rebound. With the US treasury auctions underway, for now yields are likely to remain bid and that is likely to underpin the dollar and weigh on gold, but we do expect gold prices to remain well supported as concerns over higher bond yields and the impact that may have on equity and bond prices may prompt some pick-up in safe-haven buying.

The metals prices on the London Metal Exchange are mixed this morning, Wednesday February 21, with nickel and tin prices firmer by 0.4%, while the rest are lower by between 0.1% and 0.5%. Copper prices are off 0.1% at $7,068 per tonne.

Volumes remain light with 1,862 lots traded as of 07:05 am London time – we expect this to change tomorrow with China returning from the Lunar New Year holiday.

Tuesday’s trading was for the most part weaker, with copper, aluminium, lead and zinc closing down an average of 0.8%, while nickel and tin were little changed. The cash/three-month spread on aluminium has also eased to $30-32 per tonne backwardation, from $50 on Tuesday morning.

In wider markets, spot Brent crude oil prices are weaker by 0.52% at $64.67 per barrel and the yield on US 10-year treasuries remains firm at 2.91% as US treasury auctions are underway. On the other hand, the German 10-year bund yield has eased to 0.72%, from 0.75% on Tuesday.

Equity markets in Asia are firmer – the Nikkei is up by 0.21%, the Kospi is up 0.60%, the ASX 200 is up 0.05% and the Hang Seng is up 1.71%. This follows a mixed performance in western markets on Monday, where in the United States the Dow Jones closed down by 1.01% at 24,964.75, and in Europe where the Euro Stoxx 50 closed up by 0.8% at 3,435.08.

The dollar index’s rebound continues, being recently quoted at 89.89 – the fourth consecutive day of gains. This is applying some downward pressure on other currencies, with the euro at 1.2317, sterling at 1.3980, yen at 107.82 and the Australian dollar at 0.7845. The emerging market currencies we follow are on a back footing, which reflects the slightly firmer dollar.

The economic calendar is busy today and includes flash PMI data and the minutes of the latest FOMC meeting. Data out already from Japan shows flash manufacturing PMI dipping to 54 from 54.8 in January and all industries activity rising 0.5% in December, from 1% in November. In addition, there is employment and borrowing data out of the UK and US, initial jobless claims and existing home sales data.

Two weeks ago metals prices were selling off, last week they were rebounding and this week they are consolidating. But, with China on holiday so far this week, we are not surprised prices are rudderless, with a slight weaker bias. Today’s manufacturing PMI data may provide some direction, but overall we would expect traders to sit on the side lines until China returns to work in force, but that may not be seen until next week. We still expect dips to be remain well supported.

Overnight Performance
GMT 07:05 +/- +/- % Lots
Cu 7,068 -9.0 -0.1% 551
Al 2,177 -10.5 -0.5% 646
Ni 13,570 50.0 0.4% 180
Zn 3,547 -4.0 -0.1% 316
Pb 2,580 -8.5 -0.3% 166
Sn 21,475 85.0 0.4% 3
Average BM   0.0%        1,862
Gold  1,328.05 -1.90 -0.1%  
Silver        16.43 -0.03 -0.2%
Platinum      996.60 -0.40 0.0%
Palladium  1,029.70 -4.30 -0.4%
Average PM   -0.2%


Economic calendar
GMT Country Data Actual Expected Previous
12:30am Japan Flash Manufacturing PMI 54 55.2 54.8
4:30am Japan All Industries Activity m/m 0.5% 0.5% 1.0%
 8:00am France French Flash Manufacturing PMI 58.1 58.4
 8:00am France French Flash Services PMI 59.1 59.2
8:30am Germany German Flash Manufacturing PMI 60.6 61.1
8:30am Germany German Flash Services PMI 56.9 57.3
9:00am EU Flash Manufacturing PMI 59.2 59.6
9:00am EU Flash Services PMI 57.7 58
9:30am UK Average Earnings Index 3m/y 2.5% 2.5%
9:30am UK Claimant Count Change 2.3K 8.6K
9:30am UK Public Sector Net Borrowing -11.5B 1.0B
9:30am UK Unemployment Rate 4.3% 4.3%
2:15pm UK Inflation Report Hearings
2:45pm US Flash Manufacturing PMI 55.4 55.5
2:45pm US Flash Services PMI 53.8 53.3
3:00pm US Existing Home Sales 5.61M 5.57M
7:00pm US FOMC Meeting Minutes