MORNING VIEW: Metals holding up well; continuing spread of Covid-19 in some regions could threaten supply

Broader markets were consolidating this morning, Wednesday June 24, underpinned by better economic data, but conversely held back by concerns about how the spread of the Covid-19 is accelerating in some regions; the spread in some mining countries is now a potential threat to supply.

  • Tuesday’s flash June purchasing managers’ index (PMI) data shows the global economy is recovering at a better rate than expected.
  • Gold trades at multi-year highs.

Base metals
Three-month base metals prices on the London Metal Exchange were stronger across the board with prices seeing average gains of 0.3% as of 6.48am London time, but this was seen in light volume with only 3,294 lots traded by that time.

Copper prices were up by $2 per tonne at $5,912.50 per tonne.

The most-traded August base metals contracts on the Shanghai Futures Exchange were split into two camps this morning; copper and tin were up by 0.3% and 0.2% respectively, with copper recently quoted at 47,780 yuan ($6,761) per tonne, while the rest were down by an average of 0.4%

Precious metals
Spot gold prices, having gapped higher on Monday morning, extended gains on Tuesday, with prices this morning at $1,769.54 per oz – up by 0.1% from Tuesday’s close. This is the highest gold prices have been since October 2012, when they reached a high of $1,796.05 per oz, while the all-time high from September 2011 was $1,921.12 per oz.

Spot silver prices were down by 0.2% at $17.89 per oz this morning, while platinum ($829.50 per oz) and palladium ($1,930.50 per oz) were down by 0.2% and 0.1% respectively from their closes on Tuesday. The platinum group metals are firmly stuck in sideways trading ranges, while silver has not yet followed gold into new highs for the year.

Wider markets
The yield on US 10-year treasuries has edged higher and was recently quoted at 0.72%, compared with 0.7% at a similar time on Tuesday morning. The stronger yield suggests more risk-on, while stronger gold suggests the opposite.

Asian-Pacific equities were mixed this morning: the Hang Seng (-0.24%), the Nikkei (-0.07%), China’s CSI 300 (+0.34%), the Kospi (+1.42%) and the ASX 200 (+0.19%).

Currencies
The US dollar index is weaker again this morning; it was recently quoted at 96.64, this after 97.09 at a similar time on Tuesday and down from Monday’s peak at 97.74.

The weaker dollar has provided some support to most of the other major currencies this morning: the euro (1.1319), the Australian dollar (0.6940), sterling (1.2510) and the yen (106.58).

Key data
Wednesday’s economic agenda is light with data on German Ifo business climate, US house prices and US crude oil inventories.

Today’s key themes and views
There are a lot of cross currents flowing through the base metals with physical demand weak, but improving, albeit from a low base, while economies open up. But with the spread of Covid-19 appearing to accelerate in some countries, including in mining regions, the pandemic might once again become a factor affecting supply more. Either because mines have to halt, or if transport networks are forced to slowdown.

Gold prices have resumed their upward trend and that suggests there has been an increase in investors’ caution. Given the strength of the rebound in risk assets off the March lows, which seem difficult to justify given the state of the global economy, more investors may be getting concerned that equities have run ahead of themselves.