Volume on the LME has been below average, with 3,245 lots traded as at 06.27 am London time.

This follows a day of two halves on Tuesday where prices came under pressure as the morning progressed but ran into buying toward the end of the day.

Gold and silver prices were little changed this morning, with gold up 0.1% at $1,293.66 per oz, while the platinum group metals (PGM) are up by around 0.3%. This follows a day of weakness on Tuesday that saw the precious metals complex close down by an average of 1.7%, with gold prices breaking below support at $1,300 per oz to set a low at $1,288.70 per oz. The firmer dollar and stronger US treasury yields dominated over the heightened tensions in the Middle East.

The base metals prices on the Shanghai Futures Exchange were mixed with copper and lead prices down by 0.5% and 0.4% respectively, with the former at 51,010 yuan ($8,014) per tonne, while the rest of the complex was up between 0.1% for tin and 0.9% for zinc.

Spot copper prices in Changjiang were down by 0.5% at 50,630-50,790 yuan per tonne and the LME/Shanghai copper arbitrage ratio has firmed to 7.48, from 7.47 on Tuesday.

In other metals in China, iron ore prices were unchanged at 487 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices were up by 0.3%, while gold and silver prices were down by 1.2%and 1.1% respectively.

In wider markets, spot Brent crude oil prices were up by 0.15% at $78.22 per barrel this morning, while the yield on US 10-year treasuries continues to climb and was recently quoted at 3.07%. Meanwhile, the German 10-year bund yield has firmed to 0.64%.

Equity markets in Asia were mixed on Wednesday: Nikkei (-0.34%), Hang Seng (+0.08%), CSI 300 (-0.09%), the ASX 200 (+0.33%) and the Kospi (+0.11%). Stronger US treasury yields and some weakness in Japanese data with first quarter preliminary gross domestic product (GDP) falling 0.2% from the prior quarter, seem to be weighing on sentiment. This follows a weaker performance in western markets on Tuesday, where in the US the Dow Jones closed down by 0.78% at 24,706.41, and in Europe where the Euro Stoxx 50 closed down by 0.04% at 3,564.29.

The dollar index, at 93.21, was consolidating Tuesday’s gains this morning – Tuesday’s high was 93.46 – the brief pullback between May 10 and May 14, appears to have just been a pause in the rally.

The other major currencies that had been weakening after the dollar strengthened were also consolidating this morning: euro (1.1838), sterling (1.3509), the Australian dollar (0.7482) and the yen (110.26). That said, they continue to look vulnerable. The yuan has also weakened, it was recently quoted at 6.3676 and most of the emerging market currencies we follow are looking weaker again, the exceptions being the rupee that is rebounding off recent lows.

The economic agenda is busy today, with data already out showing a mixed picture in Japan. GDP turned negative, GDP prices climbed 0.5%, while industrial production improved to 1.4%, from 1.2% previously. Data out later includes German and EU consumer price indices (CPI), UK leading indicators, with US data including building permits, housing starts, industrial production, capacity utilization, mortgage delinquencies and crude oil inventories.

The base metals generally remain rangebound, although trading seems to be more volatile and nervous. The underlying trends are that dips are bought into, suggesting underlying demand remains robust, but there is no urgency to chase prices higher. With US treasury yields strengthening we need to be wary of corrections in broader markets that could lead to another risk-off moment, but in the absence of that we expect more rangebound trading. We would expect a more bullish scenario to unfold if economic data starts to pick-up again.

Palladium prices are holding up relatively well, supported by tight supply fundamentals, but the other precious metals are suffering due to the opportunity cost of holding them increasing in line with rising US yields. Given heightened tensions over trade, sanctions, the Middle East and now with North Korea threatening to cancel the summit with the United States, geopolitical tensions could start to dominate again. We wait to see whether Tuesday’s break lower in gold prices was a false break or not.