MORNING VIEW: Gold shines while economic, political headwinds keep industrial metals under pressure

Markets remain nervous about the trade wars and the impact these are having on global economic growth with recent manufacturing purchasing managers’ index (PMI) data showing a combination of manufacturing contraction, stable but low growth, or slowing growth.

  • Equites continue to show weakness while gold and the Japanese yen attract haven demand
  • Low treasury yields and US President Donald Trump’s agenda start to weigh on the dollar
  • US 10-year treasury yields are below 2.1% and are around the lowest since 2017

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part slightly weaker on the morning of Tuesday June 4, down by an average of 0.3%.

The exception was aluminium that was slightly firmer, while zinc led on the downside with a 0.6% fall to $2,458 per tonne and copper was off by 0.2% at $5,853 per tonne, compared with Monday’s close at $5,858.

In China, base metals prices on the Shanghai Futures Exchange were mixed on Tuesday; July copper and September tin were both up by 0.3%, with the copper contract at 46,300 yuan ($6,705) per tonne, compared with Monday’s close at 46,180. The rest of the complex were down between 0.5% for lead and 1.9% for zinc.

Spot copper prices in Changjiang were up by 0.3% at 46,180-46,330 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.91, compared with 7.90 at a similar time on Monday.

Precious metals
Gold prices are climbing from strength to strength and were recently quoted at $1,325.70 per oz, up by 0.1% from Monday’s close at $1,324.80, but up over $50 per oz since May 30’s low from where the rally got going. Silver and platinum prices are following gold’s lead, while palladium prices are being left behind.

On the SHFE, the December gold contract is up by 1.3% compared with Monday’s close, while December silver is up by 0.6%.

Wider markets
Concerns about the slowdown in global economic activity continue to weigh on oil prices with the spot Brent crude oil price down at $61.08 per barrel, compared with $61.22 at a similar time on Monday, but down sharply from the $70 level where it was trading on May 27.

The yield on benchmark US 10-year Treasuries has fallen further and was recently quoted at 2.0904%, compared with 2.1284% at a similar time on Monday. The yields on the US two-year and five-year treasuries have inverted again and were recently quoted at 1.8637% and 1.8599% respectively.

The German 10-year bund yield fell further into negative territory and was recently quoted at -0.2100%, compared with -0.2000% at a similar time on Monday.

Asian equity markets were for the most part weaker this morning: Nikkei (-0.01%), Hang Seng (-0.69%), CSI 300 (-1.09%) and Kospi (-0.04%), while the exception was the ASX 200 with an increase of 0.19%.

This follows a mixed performance in western markets on Monday. In the United States, the Dow Jones Industrial Average closed up by 0.02% at 24,819.78, but the Nasdaq composite closed down by 1.61% at 7,333.02. In Europe, the Euro Stoxx 50 closed up by 0.60% at 3,300.22.

The dollar index is heading lower; it was recently quoted at 97.01, following May 30’s high at 98.29, which failed to overcome the May 23 peak at 98.38. It has now breached the low at 97.03, from May 13.

With the dollar turning lower, the other major currencies are firmer; the euro (1.1272), sterling (1.2682) and the Australian dollar (0.6987), with the Japanese yen (107.95) showing extra strength while it soaks up haven buying.

The yuan has flattened out in low ground and was recently quoted at 6.9075, compared with around 6.7100 in mid-April before the escalation in the US-China trade dispute.

Key data

Economic data on Tuesday include unemployment data for Spain, Italy and the European Union, construction PMI data out in the United Kingdom, EU consumer price index data and US factory orders.

In addition, US Federal Open Market Committee member John Williams and Federal Reserve chair Jerome Powell are speaking.

Data out late on Monday, showed US total vehicle sales for May, on an annualized basis, at 17.3 million units, which was up from April’s 16.4 million units. In the first five months of the year, sales have averaged 16.88 million units, compared with an average of 17.08 million units over the same period in 2018.

Today’s key themes and views
The downward trends in the metals prices are dominating and while economic data is generally deteriorating and the trade impasses continue there is little to be bullish about, save for the underlying tight fundamentals. At some time the fundamentals are likely to re-exert themselves but until they do the path of least resistance is likely to remain sideways-to-lower.

With economic and political concerns running high and with treasury yields falling below, or towards 2%, the opportunity cost of holding gold has fallen, making gold more of an attractive haven investment.

base metals prices
precious metals prices

economic data