Precious metals are marginally stronger

Dec 20, 2017 - 9:56 AM GMT

Precious metals are marginally stronger, with the complex showing an average gain of 0.2%, with gold prices up by 0.2% at $1,263.88 per oz, while the platinum group metals are both up by 0.3%.  The exceptions are silver prices that are off by 0.1%. This follows a quiet day for bullion prices on Tuesday that closed little changed, while the PGMs closed up by 0.3%.

Precious metals are rebounding – 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 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 for the most part firmer early on the morning of Wednesday December 20.

The exception is aluminium where prices are off by 0.3% – the rest are up between 0.3% and 0.6%, with three-month copper prices up by 0.3% at $6,955 per tonne.

Trading volumes have been average, with 6,820 lots traded as of 07.36am London time. This follows a generally bullish day on Tuesday, when the complex closed up 0.3% on average, although nickel prices closed off by 0.4%.

On the Shanghai Futures Exchange today, the base metals complex is firmer – prices are up an average of 0.5%, led by a 1.4% gain in aluminium prices. Lead is up 0.2%, zinc is up 0.5%, while copper prices are up by 0.3% at 53,720 yuan ($8,148) per tonne. Spot copper prices in Changjiang are up 0.1% at 53,300-53,440 yuan per tonne and the LME/Shanghai copper arb ratio is weak at 7.72, down from 7.76 on Tuesday.

Equities in Asia today are mixed but little changed with the Nikkei up by 0.10% and the ASX 200 up by 0.06%. The the Hang Seng is down by 0.08%, the CSI 300 is off by 0.12% and the Kospi is down by 0.25%.

This followed a weaker performance in western markets on Tuesday, where in the United States the Dow Jones closed down 0.15% at 24,754.75 and in Europe the Euro Stoxx 50 closed down by 0.75% at 3,582.22. The S&P 500 index is at a record level above its 200 day moving average (DMA) – is this a ‘buy-the-rumor-sell-the-fact’ situation ahead of the Tax bill?

The dollar index at 93.50 this morning continues to consolidate above its 20 DMA – 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 1.1835 is also consolidating, albeit on a front foot, as is the Australian dollar at 0.7666. The yen at 113.12 is weaker and sterling at 1.3381 is consolidating in mid-ground.

The yuan has strengthened, and at 6.5836 is testing resistance that lies between 6.5675 and 6.5715. Other emerging currencies we follow are diverse with the rand stronger at 12.7141 following ANC election results and the rupee also higher at 64.04. But the peso is weaker and looking vulnerable, the rupiah is also on a back footing, while the ringgit is consolidating.

Economic data already out shows Japan’s all industries industrial activity for October climbed 0.3% – it was expected to rise 0.4%, but is up from a 0.5% decline in September. German PPI for November edged up 0.1% after a 0.3% rise in October.

Data out later include EU current account, UK CBI realized sales, China leading indicators, US existing home sales and crude oil inventories. In addition, Bundesbank president Jens Weidmann and Bank of England governor Mark Carney are speaking.

The base metals prices are looking bullish again. With the exception of those of lead, the nearby spreads are not looking particularly tight. We are seeing fresh buying, which suggests that the underlying bullish fundamentals are re-exerting themselves after the profit-taking from October to early December.

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.