Gold and silver prices are consolidating this morning at $1,237.07 per oz and $16.517 per oz, respectively, while the PGMs are up an average of 0.5%. This follows a down day on Wednesday that saw gold prices fall 1.5%, silver prices drop 2.1%, platinum prices slide 3.2% and palladium retreat 2.5%.
The weakness on the LME has flowed through to China, where base metals prices are down an average of 1.8% on the Shanghai Futures Exchange, led by a 2.8% drop in nickel prices and a 2.6% fall in copper prices that were recently trading at 45,470 yuan per tonne. The falls in Shanghai have not been as large as those on the LME on Wednesday and as a result the LME/Shanghai copper arb ratio has climbed to around 8.15, from 8.10 yesterday. Spot copper prices in Changjiang are off 2.2% at 45,480-45,680 yuan per tonne.
In other metals in China, September iron ore prices have plummeted 8% to 485 yuan per tonne on the Dalian Commodity Exchange, while on SHFE steel rebar prices are down 3.9%, gold prices are off 1% and silver is down 1.3%.
In international markets, spot Brent crude oil prices are little changed at $50.59 per barrel and following the US Federal Open Market Committee (FOMC) statement, the yield on the US ten-year treasuries has climbed to 2.33%.
Equities held steady on Wednesday with the Euro Stoxx 50 closing up 0.2% and the Dow ended little changed at 20,957, but Asian equities are for the most part weaker with the Hang Seng off 0.4%, the ASX 200 is down 0.3%, the CSI 300 is off 0.1%, although the Kospi is up 0.9% and has set a record high. Japan remains closed for a public holiday.
The FOMC kept US interest rates unchanged and their statement pointed to the growth slowdown as being “transitory”, which had the effect of increasing the chance of a 25 basis point rate rise in June to 74% from 68% previously. As a result of that, the dollar index has edged higher to 99.34. The euro is slightly weaker at 1.0893, as are the sterling at 1.2857, the yen at 112.75 and the Australian dollar at 0.7407 – the latter also pulled lower by the weakness in iron ore prices.
In emerging market (EM) currencies, the yuan is slightly weaker at 6.8968, as are most of the other EM currencies we follow.
The economic agenda is busy today, China’s Caixin services PMI came in at 51.5, down from 52.2, later there is data on Spanish unemployment, services PMI across Europe, data on UK lending, EU retail sales and a host of US data including: Challenger job cuts, initial jobless claims, non-farm productivity, labour costs, the trade balance, factory orders and natural gas storage. This afternoon European Central Bank president Mario Draghi is speaking – see table below for more details.
The battering the base metals suffered on Wednesday has poured cold water on last week’s attempted rebounds and has opened the way for more price weakness, especially in the case of nickel where prices have dropped to levels not seen since June last year. The rest of the metals are holding above the mid-April lows, but prices look vulnerable, indeed they have started to weaken again as we write. The weaker PMI data out of China, has not helped confidence, neither did yesterday’s LME stock report that showed 42,375 tonnes of copper being delivered into warehouse. As such, we should expect more weakness but be on the lookout to see if support is still in place around the April lows.
Gold prices continue to retreat and we see this as a reversing of the haven buying ahead of the first French election vote as it now seems less likely that Marine Le Pen will be the next French President. In addition, weakness in other industrial metals is weighing on the outlook for precious metals demand.
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