Underlying sentiment seems to remain bullish

Base metals prices on the London Metal Exchange are mostly higher with gains averaging 1.1% this morning, Friday October 20. The exception is tin where prices are off by 0.3%. Nickel prices once again lead the gains with a 2.5% increase to $12,065 per tonne, with lead prices up by 1.6% and copper prices up by 1.3% to $7,060 per tonne. Zinc and aluminium prices are up by 0.9% and 0.6%, respectively.

Volume has been above average with 8,139 lots traded as of 06:34 BST.

This morning’s trading follows a mixed performance on Thursday when aluminium and nickel prices were up either side 1.3%, while lead prices dropped by 1.5%, zinc and tin prices were off by 0.1% and copper closed off by 0.3% at $6,972.50 per tonne.

Bullion prices are weaker this morning with spot gold prices off by 0.5% at $1,283.60 per oz, while silver prices are down by 0.6%. The platinum group metals are faring better with platinum prices up by 0.1% and palladium prices more upbeat with a 0.5% gain to $964.40 per oz. This follows a stronger performance on Thursday when silver climbed 1.7%, gold prices closed up by 0.8% and the platinum group metals were up by around 0.4%.

Base metals on the Shanghai Futures Exchange (SHFE) are for the most part stronger this morning, with gains averaging 0.9%. Nickel prices are firmer by 2.5%, aluminium prices are up by 1.7%, zinc prices are up by 0.6% and copper prices are 0.7% firmer at 55,140 yuan ($8,326) per tonne. Lead and tin prices are bucking the firmer tone this morning, both off by 0.1%. Spot copper prices in Changjiang are up by 0.6% at 54,800-55,400 yuan per tonne while the London/Shanghai copper arbitrage ratio has firmed to 7.82.

The steel-orientated metals in China have rebounded with iron ore prices climbing by 2.7% to 457 yuan per tonne on the Dalian Commodity Exchange, while steel rebar prices on the SHFE are up by 2.2% and gold and silver prices are up by 0.1% and 0.5%, respectively.

In international markets, spot Brent crude oil prices are up by 0.18% at $57.36 per barrel. The yield on US ten-year treasuries has firmed to 2.35% and the German ten-year bund yield is little changed at 0.39%.

Equities in Asia are broadly firmer: the Hang Seng is up by 0.8%, the Kospi is up by 0.5%, the ASX 200 is up 0.2%, the Nikkei is little changed and the CSI 300 is down by 0.3%. Western markets were mixed on Thursday, where in the USA, the Dow closed up by 0.02% at 23,163.04 and in Europe where the Euro Stoxx 50 closed down by 0.49% at 3,602.08.

The dollar index at 93.50 continues to consolidate within its recent 92.75 to 94.27 range – the jury remains out as to whether this is a pause in the downward trend that has been in effect all year, or whether it is the start of a turning point for a move higher. The euro at 1.1805 is also consolidating, while sterling is weaker at 1.3113, as are the yen at 113.25 and the Australian dollar at 0.7842. As such, it does look as though we may see further dollar strength and currency weakness.

The Chinese yuan has been weaker this week, recently quoted at 6.6233, while the other emerging currencies we follow are flat to weaker.

Today’s economic data includes German producer prices, the EU current account, UK public sector borrowing requirement, US existing home sales and the US Federal budget balance.

The pullback in the metals prices appears to have run its course for now with most of the LME metals putting in some strong gains this morning, with three-month copper prices back above $7,000 per tonne. We have said in recent days we were on the lookout for signs about how strong underlying bullish sentiment is and today’s upbeat tone suggests sentiment remains bullish. Our view of late has been to remain quietly bullish, but expect trading to become choppier as prices are generally in high ground so we should expect more bouts of scale-up selling along the way.

The firmer tone in gold, silver and platinum prices has run out of steam and, with the dollar trying to push higher and equities hitting new highs of late, the opportunity cost of holding gold is high, especially while the North Korean situation seems to be calmer, at least for now. Palladium prices have found support, we wait to see if they can push on to fresh multi-year highs – they are, however, looking a bit toppy. We would expect the precious metals to remain well supported, but with the dollar looking well placed to push higher, the precious metals may face a headwind.

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