METALS MORNING VIEW 11/07: Base metals look brighter, while bullion prices drift

The base metals are looking a bit firmer and better placed to work higher this morning, Tuesday July 11.

London Metal Exchange three month prices are not up by much – up an average of 0.2% – but on top of most of the metals’ rebounds from Monday’s lows, the metals may be putting an end to the recent weaker tone. Needless to say such a fledgling rebound could be snuffed out, but as of 07:16 BST it is looking a bit brighter, even if volume is low with 4,323 lots traded.

Gold, platinum and silver prices continued to weaken this morning with prices down an average of 0.3%, with spot gold prices at $1,212.30 per oz, while palladium is working higher with a gain of 0.5%. This follows a day when some dip buying was evident on Monday. Lack of any pick-up in geopolitical concerns over the North Korean situation seems to have left gold prices facing the full headwind from higher bond yields.

On the Shanghai Futures Exchange (SHFE), the base metals prices are ranged between a 1.1% rise in lead prices and a 0.8% drop in aluminium prices, while copper prices are off slightly at 46,850 yuan ($6,882) per tonne. Spot copper prices in Changjiang are down 0.3% at 46,600-46,750 yuan per tonne and the LME/Shanghai copper arb ratio has eased to 8.02.

The base metals may be subdued, but the steel raw materials and steels are more bullish with September iron ore prices on the Dalian Commodity Exchange up 3.4% at 496.50 yuan per tonne, while on the SHFE, steel rebar prices are up 3.5%, silver prices are down 0.9% and gold prices are little changed.

In international markets, spot Brent crude oil prices are up 0.2% at $47.09 per barrel and the yield on the US ten-year treasuries remains at 2.38%, the German ten-year bund is little changed at 0.55%.

Equities were split on Monday with the Euro Stoxx 50 closing up 0.4%, while the Dow closed down 5.8 points at 21,408.52. Asia, however, is looking more upbeat this morning with the Nikkei and Kospi both up 0.6%, the Hang Seng is up 1.5%, the CSI 300 is up 1%, while the ASX 200 lags with a 0.1% gain.

The dollar index, at 96.16 is slightly firmer, it still seems to be trying to form a base, although it could still be another mini-counter trend move. The euro is consolidating recent gains at 1.1386, sterling at 1.2881 is drifting, it looks a bit double-toppy on the chart, the yen at 114.40 is weakening, while the Australian dollar at 0.7622 is firmer.

Data out already shows a pick-up in UK retail sales, Japan’s M2 and Japan’s preliminary machine tool orders. The latter tends to move in a slow circular wave, it crossed higher in January and has been trending higher since – each positive and negative wave seems to last for a minimum of 15 months – so that bodes well. Later there is data on Italian industrial production, UK leading indicators, US small business index, US job openings and final wholesale inventories. In addition, UK Monetary Policy Committee members Andrew Haldane and Ben Broadbent and US Federal Open Market Committee member Lael Brainard are speaking.

The base metals are looking brighter with recent price weakness attracting some dip buying – lead and zinc prices look best placed to extend gains, copper and nickel prices seem to be turning higher, while aluminium and tin are consolidating. With lack of fear in the broader markets, so little sign of any broad market risk-off move and after a quiet second quarter, we do expect metals prices to remain underpinned. Whether consumers will feel the need to chase prices higher is another matter – we doubt they will, but there may be some short-covering to be done once the downside looks limited.

Gold, silver and platinum prices are trending lower with further important support levels broken – this as bond yields rise and investors are keeping calm over the developments in North Korea. The firmer monetary policy rhetoric from the US Federal Reserve, the European Central Bank and even the Bank of England, have raised the opportunity cost of holding precious metals and investors are voting with their feet as this unfolds. While this happens, we would keep an eye on geopolitical developments, we expect these to rise before too long, but weaker precious metals prices should therefore lead to even cheaper havens should the need arise.

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

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