MORNING VIEW: Broader markets mixed; gold at record levels, base metals higher too
Gold is setting fresh record highs with prices having been as high as $1,943.70 per oz this morning, Monday July 27, while the base metals on the London Metal Exchange were up by an average of 0.8%.
Hopes and fears are driving the markets, with the hope of further United States stimulus underpinning equites and industrial metals, while concerns about the US-China diplomatic relations and how the ongoing spread of Covid-19 could hit demand again are driving gold prices.
- Asian-Pacific equities were mixed as were major western pre-market equity futures indices this morning.
- There are many cross currents for the markets to contend with, so expect increased volatility.
Three-month base metals prices on the LME were up across the board this morning, led by a 1.2% gain in tin ($17,840 per tonne), while the rest were up between 0.5% and 0.9%, with copper up by 0.6% at $6,441 per tonne.
The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part firmer, the exception was copper where the September contract was down by 0.3% at 51,640 yuan ($7,358) per tonne, while the rest were up by an average of 1.4%.
Spot gold prices were up by 1.8% at $1,935.34 per oz this morning, compared with Friday’s close at $1,901.35. The previous record high was $1,921.13 per oz that was seen in 2011.
Silver ($24.19 per oz) was up by 6.4%, platinum ($949.50 per oz) was up by 4% and palladium ($2,244.70 per oz) was up by 1.8%, compared with Friday’s closes. The gold/silver ratio has fallen to 1:80, this compared to 1:93 at the start of last week.
The yield on US 10-year treasuries was at 0.57% this morning - this is unchanged from where it was at a similar time on Friday and is the lowest it has been for a while and highlights some underlying stress and haven demand.
Asian-Pacific equities were mixed this morning: the Hang Seng (-0.13%), the CSI 300 (+0.51%), the Nikkei (-0.16%), the ASX 200 (+0.34%) and the Kospi (+0.79%).
The US dollar index is trending lower and was recently quoted at 93.94, compared with 94.66 at a similar time on Friday, and it is the lowest it has been since September 2018.
All the main currencies are firmer on the dollar weakness, with the euro (1.1711) leading the way, followed by the yen (105.48), sterling (1.2822) and the Australian dollar (0.7139).
Economic data already out on Monday showed Japan’s all industries activity fell by 3.5% in May, compared with April, while the Bank of Japan’s core consumer price index climbed by 0.1%.
Later there is data on European Union M3 money supply, private loans, German Ifo business climate and a Bundesbank monthly report. In the US, there is data on durable goods orders that are expected to have climbed by 7% in June, after a 15.7% rebound in May, following the sharp falls in March and April.
Today’s key themes and views
The weaker tone / consolidation in the base metals that started to be seen toward the end of last week is on hold today while the markets are buoyed by prospects for further stimulus in the US and as China seem to be a keen importer of metals. The weaker dollar also no doubt helping to underpin demand.
Overall, we have expected dips to be supported because of production disruptions, potential for stockpiling, promises of infrastructure spending and as institutional investors have access to cheap financing so may be looking for long-term buy and hold opportunities, but at the same time the market is vulnerable to bouts of profit-taking should broader markets undergo corrections, which does seem to be a risk, which the run-up in gold and other havens highlight.
As we said on Friday, gold seems to be adjusting for different financial times ahead, where interest rates remain low for a long time, where there is increased risk due to the uncertainty that comes with the pandemic and the unknown consequences of pumping so much money and debt into the global financial system. The price may not be immune to profit-taking sell-offs along the way should other markets correct, but overall we expect gold’s repositioning to mean higher prices.