Gold prices hold up well but face headwinds

May 25, 2017 - 9:08 AM GMT
by

FastMarkets

Base metals prices are little changed this morning, Thursday May 25, with three-month zinc prices off 0.5% at $2,638 per tonne, copper is off 0.1% at $5,696 per tonne, while the rest are up between 0.1% to 0.2%.

Volume has been low with 3,718 lots traded as of 06:27 BST, with most of the volume seen in zinc. This comes after a negative day of trading on Wednesday, when prices closed down an average of 0.7%, which was somewhat skewed by a 2.4% drop in nickel prices.

The precious metals prices are up an average of 0.2% this morning with gains spread between 0.1% for spot gold at $1,258.80 per oz and platinum where prices are up 0.3% at $948.50 per oz. Wednesday generally saw firmer prices with gold, silver and platinum up an average of 0.4%, while palladium prices remained under pressure with prices down 1% at $765 per oz.

Base metals prices trading on the Shanghai Futures Exchange are for the most part stronger this morning, the exception is nickel that is down 1.4%, while the rest are up between 0.1% for tin prices and 0.4% for aluminium prices. Copper is up 0.2% at 45,940 yuan ($6,666) per tonne. Spot copper prices in Changjiang down 0.2% at 45,760-45,860 yuan per tonne, while the LME/Shanghai copper arb ratio is weaker at 8.07. Given the Moody’s cut of China’s debt rating on Wednesday, the metals have generally taken the news in their stride.

September iron ore prices on the Dalian Commodity Exchange continue their volatile trading, prices are down 2.8% today at 453.50 yuan per tonne, while on the SHFE, steel rebar prices are off 0.2% and gold and silver prices are little changed.

In international markets, spot Brent crude oil prices are stronger, up 1.1% at $54.43 per barrel, this as Organization of the Petroleum Exporting Countries (OPEC) ministers meet today in Vienna. The yield on the US ten-year treasuries has eased, it is 2.25%.

Equities were mixed on Wednesday with the Euro Stoxx 50 closing down 0.2% and the Dow closed up 0.4% at 21,012.42. Asia, however, is firmer with the CSI 300 up 1.2%, the Kospi is up 1.1% after setting a record high earlier today, the Hang Seng is up 0.8%, the Nikkei is up 0.4% and he ASX 200 is up 0.2%. Again, the strength in Asia suggests the markets have not been too fazed by Moody’s downgrade.

The dollar index got some lift on Tuesday and saw some follow through-buying on Wednesday morning, but then went on to slip in the afternoon, it was recently quoted at 96.94 – the recent low was 96.79, seen on Monday May 22. With the dollar looking heavy further weakness seems likely, which may well help support metals prices. The euro is firm at 1.1238, as is the Australian dollar at 0.7503, while the sterling and the yen are consolidating at 1.2989 and 111.67, respectively.

The yuan has strengthened to 6.8560, from 6.8802 on Wednesday – this suggests the authorities have given the yuan a boost to avoid any negative effect from Moody’s downgrade. The other emerging market currencies are also stronger, which is a sign of confidence and suggests the market is putting risk back on again.

Today’s economic agenda is focused on the UK and USA, with UK data including a second reading on GDP, business investment, mortgage approvals and an index of services. US data includes initial jobless claims, goods trade balance, preliminary wholesale inventories and natural gas storage. See table below for more details.

The base metals are split into three camps; copper, aluminium and tin have regained their upward bias, zinc is consolidating in high ground, while lead and nickel prices remain weak. Nickel’s weakness is understandable given the boost supply has been given from Indonesia and the Philippines in recent months, but lead’s weakness is surprising, especially with data from the International Lead and Zinc Study Group showing a meaningful swing back to a supply deficit in March, while the other metals are reflecting our quietly bullish outlook.

Gold, silver and platinum prices are holding up well, but given the firmer tone in equities we are not particularly bullish, although we do expect prices to be well supported. We see palladium prices correcting after their recent strength and given some poor auto sales data, but again we expect dips will be well supported.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

 

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