MORNING VIEW: Base metals continue higher while gold pulls back

Markets remained upbeat on the morning of Thursday January 7 despite the outbreak of violence in Washington, DC, with nickel joining copper and tin in setting fresh new multi-month highs but gold turning lower.

  • Asian-Pacific equities generally upbeat, along with pre-market western equity index futures as the US Democrats win the Senate
  • US 10-year treasury yields continue to rise 

Base metals
Three-month base metals prices on the London Metal Exchange were stronger across the board this morning, rising by an average of 0.9%, with nickel once again rising the most – up by 2.1% at $18,125 per tonne. Copper was up by 0.4% at $8,102 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part higher, with the exception of February aluminium, which was down by 0.5%, while the rest were up by an average of 1.5%. February copper was up by 1% at 59,380 yuan ($9,196) per tonne.

Precious metals
Spot gold and silver prices have pulled back from recent rebound highs, which suggests the combination of higher bond yields and strong broader markets have raised the opportunity cost of holding gold. Gold was down by 0.2% at $1,919.87 per oz and silver was down by 0.4% at $27.17 per oz on Thursday morning. Platinum and palladium were up by 0.1% and 0.4% at $$1,106 per oz and $2,449 per oz respectively.

Wider markets
The yield on US 10-year treasuries  was recently quoted at 1.06%, compared with 1.02% at a similar time on Wednesday.

Asia Pacific equities were mostly stronger this morning: the CSI (+1.77%), the ASX 200 (+1.59%), the Nikkei (+1.6%) and the Kospi (+2.14%) – the exception was the Hang Seng (-0.32%).

Currencies
Despite the Democratic win in the Senate, the US Dollar Index was firmer this morning and was recently quoted at 89.62, this after a low on Wednesday at 89.21.

The other major currencies have pulled back from recent strength as the dollar has firmed: the euro (1.2298), the Australian dollar (0.7775), sterling (1.3586) and the yen (103.37).

Key data

Economic data already out showed Germany’s factory orders climbed by 2.3% in November, this after a 3.3% rise in October. Later there is data on UK construction and housing equity withdrawal, EU and Italian data on consumer prices (CPI) and EU retail sales.

US data includes Challenger job cuts, initial jobless claims, the trade balance, ISM services purchasing managers index and natural gas storage.

In addition, Federal Open Market Committee (FOMC) member Charles Evans is scheduled to speak.

Today’s key themes and views
With copper, tin and nickel pushing the envelope on the upside and zinc looking set to follow suit, the metals are seem rigidly focused on better times ahead and with Joe Biden soon to become president, and with the Democrats running Congress, there may well be considerably more stimulus and investment in US infrastructure. But before that unfolds, Biden might well take a firmer stand on trying to rein in the spread of the coronavirus, which could lead to more lockdowns and that could hit nearby demand for metals.

With gold prices pulling back we wait to see if the move is just a counter trend after having run up too fast in recent days, or whether the market now feels in less need for a haven now that Biden is about to take control.

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