MORNING VIEW: Base metals bullish; copper, nickel in driving seat

The base metals remain buoyant on good volumes this morning, Friday November 27, but equity indices were looking mixed.

  • Chinese industrial profits surged by 28.2% year on year in October – the fastest pace since early 2017

Base metals
The three-month base metals prices on the London Metal Exchange were up across the board this morning with gains averaging 0.5% – led by a 0.9% rally in nickel to $16,435 per tonne. Nickel, copper ($7,465 per tonne) and lead ($2,049.50 per tonne) have all set fresh highs for the year.

Volumes traded on the LME have been high with 11,896 lots traded as of 6.28am London time, compared with more a normal level of around 6,000 lots at a similar time of day.

The most-traded base metals contracts on the Shanghai Futures Exchange were also up across the board this morning, also led by nickel, with the February contract up by 2.9%. The January contracts for aluminium and copper were both up by 1.9%, with the latter at 55,980 yuan ($8,514) per tonne, while January tin was up by 1.6% and January zinc and lead were up by 0.6% and 0.2% respectively.

Precious metals
Spot gold prices were consolidating in low ground but above recent lows, with prices recently quoted at $1,809 per oz, little changed from a similar time on Thursday. Spot silver was unchanged at $23.19 per oz, spot palladium was up by 0.9% at $953.50 per oz and spot platinum was down by 0.6% at $953.50 per oz, but the latter has been one of the stronger metals in recent days.

Wider markets
The yield on US 10-year treasuries has slipped slightly, it was recently quoted at 0.86%, down from 0.88% at a similar time on Thursday.

Asia-Pacific equities were mainly firmer this morning: the CSI (+1.24%), the Nikkei (+0.41%), the Hang Seng (+0.57%) and the Kospi (+0.29%), while the ASX 200 (-0.53%) was weaker.

Currencies
The US dollar index continues to trend lower, the index was recently at 91.91, just holding above support at 91.73 – the low from September 1.

The other major currencies were firmer, in high ground, but below recent highs: the euro (1.1927), the Australian dollar (0.7376), sterling (1.3366) and the yen (104.06).

Key data
Economic data out on Friday includes German import prices and French data on consumer spending, consumer prices and preliminary gross domestic product.

Today’s key themes and views
With half the LME metals setting fresh highs for the year this morning and with the dollar trending lower, sentiment remains bullish. While momentum is so strong there is little point standing in its way. A positive outlook and an extremely liquid climate could see rallies extend well beyond where value lies. Needless to say we think prices have run ahead of the fundamentals and are vulnerable to a correction.

Given the bullishness in other markets and strong sentiment, it is not surprising gold has been under pressure. It is still too early to say whether the correction in gold has run its course, there are still valid longer-term reasons to be bullish for gold, but in the short term the correction may still have further to run.

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