Market and product
Oil price slump takes gold price with it, base metals lower too
Precious metals were mixed, Gold was up 0.4 percent at $1,168.80 from Monday’s close, silver was down 0.4 percent at $16.02, platinum was off 0.3 percent at $1,223 and palladium that has been the stronger of the precious metals of late, fell the most yesterday, it was down 1.9 percent at $784.
This morning the precious metals have sold-off further with silver down another 2.3 percent at $15.65, which broke below the recent low at $15.76, gold is down 1.2 percent at $1,154.50 so it has dropped below last week’s low at $1,161 (we had been surprised that the break of the triple bottom at $1,180 had not led to more of a sell-off and wondered whether that might mean the move lower had been an overshoot, but with $1,161 broken it does suggest the path is open to the downside.) Palladium is down 1.4 percent at $772.80 and platinum is off 0.9 percent at $1,212.50.
The base metals are down a further 0.8 percent on average with copper, aluminium and zinc all off 0.7 percent at $6,602.25, $2,045 and $2,242, nickel and lead are down 1.1 percent at $15,063 and $1,982 and tin is off 0.5 percent at $19,500. Volume has been higher than normal with 6,463 lots traded. It would appear that with oil and bullion prices falling heavily, with the dollar strong and with further reports of hedge funds exiting the commodity arena that the commodities are out of favour and that is being reflected in prices as much as the fundamentals are.
In Shanghai, the January base metals contracts are down an average of 1.9 percent with zinc leading the decline with a three percent drop to Rmb 16,395, aluminium is off 1.9 percent at Rmb 13,825, copper is down 1.6 percent at Rmb 46,780 and lead is off 1.3 percent at Rmb 13,430. Steel rebar is bucking the trend with a 0.4 percent at Rmb 2,629. The fact the base are down, especially zinc, while steel is up suggests to us that this is more about speculative long liquidation.
Spot copper in Changjiang is down one percent at Rmb 47,85—48,050, the backwardation with the futures is at a wider equivalent of $207/tonne and the LME/Shanghai copper arb ratio is weaker at 1 to 7.05 for the January contract.
Bullion prices in Shanghai are down heavily with silver off 3.6 percent at Rmb 3,349 and gold is down 1.6 percent at Rmb 226.55.
Equities were mixed-to-weaker yesterday with the Euro Stoxx 50 down 1.6 percent, the Dow was up around 0.1 percent, while the S&P 500 was off 0.3 percent. In Asia the markets are mixed-to-lower, the Nikkei continues its advance, albeit slower today with a 0.4 percent rise, while the Hang Seng, CSI and Kospi are down between 0.1 and 0.5 percent. Equity futures in Europe and the US are showing gains, with the US leading the way on the back of the Republicans doing well in the mid-term elections.
Currencies- the dollar index is upbeat at 87.17, the euro is firmer at 1.2540, the yen continues to weaken, last at 114.25, the aussie is weak at 0.8711, sterling is also weaker at 1.5972, while the yuan is firm at 6.1127.
The economic agenda is busy with a barrage of services PMI data out across the globe, already out is China’s that dropped to 52.9 from 53.5. In addition, we get EU retail sales and the start of US employment reports with the ADP non-farm employment change, plus crude oil inventories. FOMC member Narayana Kocherlakota is speaking – see table below for more details. Poor European PMI data could add further downward pressure on the markets, but it will be interesting to see if US numbers remain bullish.
The more upbeat tone in the base metals from last week has been lost and our overall view has been that rallies would attract selling and that seems to be the overriding theme in the market that is even affecting aluminium which has been the strongest of the complex of late. So for now support levels are under test and we wait to see if the down trends are extended – given that commodities seem to be falling out of favour with elements of the investor community the down trends may well extend. That said, some metals look more oversold than others and others have better fundamentals than some, so we would expect each metal to behave according to its own set-up into any weakness. We feel tin and nickel as oversold, zinc and aluminium are focused on supply deficits next year (but they may have jumped the gun), while we feel copper could well fall further.
The precious metals are being beaten down by the strong dollar and the continuing mood swing away from bullion as the opportunity cost of holding it is proving too expensive when equities are pushing the envelope on the upside. That said, the weaker prices get the more attractive they will be for those looking to buy physical metal. We feel the PGMs are being dragged down by gold and they may be the one to react the most once the mood changes.
Metals Overnight Performance
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