Gold’s rebound pauses ahead of FOMC minutes

Oct 11, 2017 - 9:25 AM GMT
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Base metals prices on the London Metal Exchange are weaker across the board by an average of 0.7% this morning, Wednesday October 11. Zinc prices lead the decline with a 1.3% drop, followed by lead prices (-1%), nickel (-0.7%), tin and aluminium (-0.5%), while three-month copper prices are off by 0.2% at $6,739 per tonne.

Volume has been above average with 8,553 lots traded as of 07:16 BST.

This follows a stronger performance for most of the metals on Tuesday, when the complex closed up by 0.7%, led by rises of 1.8% and 1.5% in lead and copper prices, respectively. As such, this morning’s weakness seems to show consolidation as recent high prices attract scale-up selling.

Gold and silver prices are little changed this morning with spot gold at $1,289.07 per oz, while the platinum group metals (PGMs) are firmer with platinum prices up by 0.2% and palladium prices up by 0.5%. Tuesday saw some strong prices gains with platinum up by 1.8%, a gain of 1.2% in silver, palladium up by 0.6% and gold prices up by 0.4%.

In Shanghai, the base metals on the Shanghai Futures Exchange (SHFE) are broadly lower today. Aluminium leads the complex lower with a 1.8% drop, followed by a decrease of 1.2% in lead prices, a fall of 0.8% in tin prices and a 0.4% decline in zinc prices. Copper and nickel prices are bucking the general downtrend, with increases of 0.5% and 0.1%, respectively, with the former at 52,350 yuan ($7,947) per tonne. Spot copper prices in Changjiang are also firmer, up 0.4% at 52,660-52,760 yuan per tonne and the London/Shanghai copper arb ratio is a little easier at 7.77.

In other metals in China, iron ore prices are off 0.1% at 439.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are down by 0.4%, while gold and silver prices are down by 0.2% and 0.1%, respectively.

In international markets, spot Brent crude oil prices are up by 0.34% at $56.73 per barrel, the yield on US ten-year treasuries has eased to 2.36% and the German ten-year bund yield has firmed to 0.46%.

Equities in Asia are up across the board with the Kospi up by 1%, the ASX 200 is up by 0.6%, the Nikkei and CSI 300 are up by 0.3% and the Hang Seng is little changed. This follows a mixed performance on Tuesday, where in the USA, the Dow closed up by 0.31% at 22,830.68; and in Europe, where the Euro Stoxx 50 closed down by 0.32% at 3,598.79.

The dollar index is weaker again this morning at 93.19. This comes after the index set a fresh high of 94.27 on Friday, October 6 – breaching the August rebound peak of 94.15, which was a bullish development. With the dollar weaker for the third day now, we need to see if this is just consolidation, or is a precursor for further weakness. For now, we expect this is just consolidation. This evening’s US Federal Open Market Committee (FOMC) meeting minutes may well set the direction for the dollar again. With the dollar on a back footing, the euro is firmer at 1.1825, while sterling (1.3197), the Australian dollar (0.7785) and yen (112.35) are consolidating. The Chinese yuan has taken on a firmer tone in October, it was recently quoted at 6.5812. Meanwhile, most emerging currencies we follow are consolidating, the exceptions are the rand and ringgit that are firmer.

Data out already shows Japan’s core machinery orders and preliminary machine tool orders both beat expectations. Data out later in the US includes jobs openings and the FOMC meeting minutes.

The underlying trends in the base metals are upward but those metals in or near high ground seem to be having to absorb selling which is capping the upside, while copper and nickel prices that are still some way below the highs seem to be having an easier time working higher, but neither seems in any rush. We remain quietly bullish, but expect trading to become choppier as prices run into more bouts of scale-up selling.

Gold, silver and platinum prices have rebounded well in recent days, the higher prices are attracting some selling this morning. The weaker dollar is no doubt a factor in the recent strength and we would expect some nervous in the precious metals markets today ahead of the FOMC minutes. The North Korea crisis seems to be simmering in the background, any escalation in tension again is likely to fuel the rallies. Palladium prices have held up well, but prices seem content to consolidate.

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