METALS MORNING VIEW 23/10: Gold prices work higher while other markets struggle

Three-month base metals prices on the London Metal Exchange were for the most part weaker on the morning of Tuesday October 23, with losses averaging 0.4% – the exception being tin where prices were up by 0.1%.

Zinc led the rest of the complex downward with a fall of 1.2% to $2,625 per tonne, while copper was down by 0.7% at $6,183 per tonne.

The precious metals were split this morning with gold and palladium prices stronger, with palladium up 3.7% at $1,120 per oz as it closes in on the January high of $1,140 per oz and gold up by 0.2% at $1,228.51 per oz. Silver was little changed at $14.57 per oz and platinum prices were off by 1% at $821.50 per oz.

In China, base metals prices on the Shanghai Futures Exchange were mixed with December copper and January nickel down by 0.6% and 0.8% respectively, with copper at 50,060 yuan ($7,212) per tonne, while the rest were up by an average of 0.3%.

Spot copper prices in Changjiang were down by 0.2% at 50,310-50,400 yuan per tonne and the LME/Shanghai copper arbitrage ratio is at 8.03.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was unchanged at 521.50 yuan per tonne. On the SHFE, the January steel rebar contract was up by 0.6%, while the December gold contract was little changed and the December silver contract was down by 0.2%.

In wider markets, spot Brent crude oil prices were weaker by 0.85% and were recently quoted at $79.28 per barrel. The yield on US 10-year treasuries was at 3.1571% and the German 10-year bund yield was at 0.4260%.

Asian equity markets were weaker on Tuesday: Nikkei (-2.67%), Kospi (-2.57%), the Hang Seng (-2.95%), the CSI 300 (-2.63%) and ASX200 (-1.05%). This follows a weaker performance in western markets on Monday; in the United States, the Dow Jones closed down by 0.50% at 25,317.41, while in Europe, the Euro Stoxx 50 was down by 0.6% at 3,190.09. Equities are under pressure after the headwinds on trade and geopolitical stress begin to weigh more on sentiment, this despite expectations of increased stimulus in China.

The dollar index continues to react favorably to underlying US monetary policy with the index at 96.06.

With the dollar stronger, the other major currencies we follow are generally weaker: euro (1.1448), sterling (1.2967) and the Australian dollar (0.7072), although the yen is slightly firmer at 112.33, so it may be picking up some haven interest.

The yuan remains weak and was recently quoted at 6.9395. The emerging market currencies we follow are mixed with the peso, rupee, ringgit and rupiah weakening, while the rouble, real and rand are either consolidating in mid ground or are near recent highs.

The economic agenda is fairly light today, with data already out showing Japan’s core consumer price index (CPI) rose 0.5%, which was unchanged, while the German producer price index (PPI) climbed 0.5% after a 0.3% rise previously. Data out later includes Confederation of British Industry industrial order expectations from the United Kingdom, consumer confidence from the European Union and the Richmond manufacturing index from the US. In addition, UK Monetary Policy Committee member Andrew Haldane, Bank of England governor Mark Carney and US Federal Open Market Committee member Raphael Bostic are speaking.

The base metals prices are looking quite diverse but with the underlying theme of generally being in low ground. The exception is tin, where prices are working higher at a time when Indonesian tin exports may suffer as the country once again cracks down on illegal mining. Copper and zinc prices are consolidating near the top of their recent ranges, lead is in mid-range, while aluminium and nickel are in near their lows.

Overall, in this climate of uncertainty, consumers and would-be buyers may not feel in any hurry to chase the market higher so we expect more sideways trading, although should equity markets continue to correct lower that could add further downward pressure on those metals not facing supply tightness.

Gold prices seem to be waking up to the stress in the global trade and the correction in other financial markets. Given gold prices have already seen considerable weakness since the second quarter of the year, it may well be that gold prices are now low enough to make it look a cheap haven asset. Silver and platinum are holding up relatively well, but are not looking as strong as gold, while palladium is the strongest of the lot, with prices closing in on the highs seen in January.

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