MORNING VIEW: Gold price rises as Middle East tensions escalate

While generally weak global economic data continues to weigh on sentiment and is keeping base metals prices under pressure, the rise in tensions between the United States and Iran has lifted the gold price this morning, Tuesday June 18.

The market is also waiting for direction from the US Federal Reserve, which it should get on Wednesday when the Federal Open Market Committee (FOMC) meeting provides its economic projections, issues its statement and holds a press conference.

  • US sends 1,000 more troops to the Middle East to boost its defenses
  • Gold prices approach multi-year highs…
  • …but oil prices remain subdued because demand is weak and supply is adequate

Base metals
Three-month base metals on the London Metal Exchange were mixed this morning, with aluminium, nickel and tin prices up between 0.2% and 0.4%, while copper, zinc and lead prices were down between 0.1% for copper ($5,846 per tonne) and 0.7% for zinc ($2,458 per tonne). Volume has been light with 3,671 lots traded as at 6.32am London time.

In China, base metals prices on the Shanghai Futures Exchange were also mixed with July lead and August copper prices rising by 0.7% and 0.4% respectively, with copper at 46,360 yuan ($6,693) per tonne, after a close on Monday of 46,160 yuan per tonne. The rest are down between 0.1% for August aluminium and 0.9% for July nickel.

Spot copper prices in Changjiang were up 0.5% at 46,260-46,330 yuan per tonne and the LME/Shanghai copper arbitrage ratio dipped lower to 7.93, after 7.94 at a similar time on Monday.

Precious metals
The spot precious metals prices are up between 0.3% for platinum and 0.5% for gold and palladium. Gold and palladium have been leading the charge higher, silver has followed gold’s lead but is not setting the pace, while platinum prices, although up today, are holding just above recent lows and so remain relatively weak. At $1,345.64 per oz, the spot gold price is climbing back toward a high of $1,358.40 per oz reached on June 14.

Gold is firm because rising tensions in the Middle East are attracting investors’ interest in haven assets, while palladium seems to be rebounding on continuing strong fundamentals after its late-March to May technical correction.

On the SHFE, the December gold and silver contracts were down by 0.3% and 0.5% respectively.

Wider markets
Despite the increased tension over Iran, the spot Brent crude oil price remains surprisingly weak at $60.61 per barrel, which was down by 0.32% compared with Monday’s close at $60.80 per barrel. Reasons for the relative weakness are to do with concerns about slowing demand, the continuing US-China trade war and an abundance of supply of oil from US shale producers. Any escalation in attacks on tankers in the Straits of Hormuz, could, however, push the price higher again.

Middle East tensions are boosting demand for US treasuries, with the yield on benchmark US 10-year treasuries down at 2.0713 %, compared with 2.1000% at a similar time on Monday. Meanwhile, the German 10-year bund yield still trades in negative territory and was recently quoted at -0.2549%, compared with -0.2500% at a similar time on Monday.

In Asia, equities were for the most part firmer on Tuesday: Hang Seng (+1.16%), CSI300 (+0.25%), Kospi (+0.38%), the ASX 200 (+0.6%), while the Nikkei was down by 0.72%.

This follows slightly firmer closes for major US indices on Monday, with the Dow Jones Industrial Average up by 0.09% and the Nasdaq up by 0.62%.

The recovery in the dollar index is consolidating this morning, it was recently quoted at 97.40, compared with 97.56 at a similar time on Monday.

The other major currencies we follow are mixed: the euro (1.1239), the Australian dollar (0.6838), the yen (108.24, while sterling is close to this year’s low and was recently quoted at 1.2532.

The yuan has weakened to 6.9267.

Key data

Today’s key data includes German and EU ZEW economic sentiment, EU consumer price index, EU trade balance and US housing starts and building permits. In addition, European Central Bank president Mario Draghi and Bank of England governor Mark Carney are speaking.

Today’s key themes and views

Most of the base metals are stuck in sideways-to-lower trends, the exception is lead that is edging higher. Business sentiment looks set to remain depressed until there is some progress on US-China trade negotiations and with economic data showing weakness, consumers are unlikely to be in any hurry to restock.

Gold prices are attracting investor interest and the combination of tensions in the Middle East and potential for equity markets to correct may well provide further support. That said, gold prices are approaching levels where in recent years selling has dominated. The peaks since 2014, have ranged between $1,366.15 and $1,388.70 per oz.

base metals
precious metals

macroeconomic data

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