METALS MORNING VIEW – Gold prices rally, base metals hold up well considering poor Chinese PMI data

Date 8/24/2015 9:16:09 AM

Precious metals were stronger yesterday with average gains of two percent with gold prices up 1.9 percent and the others up between 1.7 and 2.2 percent – concerns about China and emerging markets causing contagion in broader markets seems to have refocused investors’ interest in bullion.


The base metals were mixed yesterday, closing with average gains of 0.4 percent, copper led on the upside with a 1.7 percent gain to $5,090, aluminium, zinc and lead were firmer, while nickel and tin were down an average of 0.9 percent.


This morning the gold prices are leading the way on the upside with a 0.8 percent gain to $1,164.40, the rest are up between 0.4 and 0.7 percent.


Base metals are mixed this morning, but generally little changed with copper off 0.2 percent at $5,077.50, the rest are up between 0.1 and 0.3 percent. Volume has been average with 3,883 lots traded as of 06:05 BST – so far this week volume at this time of day has averaged 3,212 lots, down from an average of 10,523 lots last week, so the markets do seem to have settled down after the post-Chinese devaluation gyrations.


In China, the base metals are for the most part firmer by an average of 0.6 percent with copper up the most with a 1.1 percent gain to Rmb 38,990, while nickel and tin are negative, with tin down 1.2 percent and nickel off 0.4 percent. The latter two may be off as China has forced some heavy industry to halt production to clean the air around Beijing, this is especially affecting the steel industry, which could be impacting the stainless steel and tin-plating industries.


Spot copper in Changjiang is up 0.9 percent at Rmb 39,100-39,200, the backwardation with the October contracts is at an equivalent of $32 per tonne and the LME/Shanghai copper arb ratio is at 7.77, which means the arb window is open – this finally seems to be underpinning copper, but reports suggest copper is being imported for financial reasons, rather than for consumption – that said, perhaps the SRB are also in the market.


Other metals in China are mixed, gold is up 3.2 percent, silver is up 1.9 percent, steel rebar is unchanged, while iron ore is weaker at $55.80.


Equities around the global are now in retreat as concerns about China and emerging markets and the possible contagion from these regions to developed markets seems to be weighing on sentiment. Yesterday, the Euro Stoxx 50 closed off 2.2 percent and the Dow closed down 2.1 percent and Asia is down heavily this morning with the Nikkei off 2.8 percent, the Hang Seng is off 2.4 percent, the CSI 300 is down 4.4 percent and the Kospi is off 1.7 percent. The weakness looks set to circumnavigate the globe again as the pre-market Dax is off around 3 percent.


Currencies – despite continuing emerging market currency weakness the dollar index is falling too, last at 95.44, while the euro, sterling and yen are stronger at 1.1290, 1.5696 and 122.87. The aussie is flat-lined at 0.7305, the rouble is weak at 67.44, as is the yuan at 6.4522 and the rupee, rupiah and rand are all weaker, while the real is consolidating in low ground.


The economic data is focused on flash PMI – so far Japan and China’s manufacturing PMIs have come in lower than expected at 51,9 and 47.1 respectively. Later we get manufacturing and services PMI data out across Europe and the US, with data on UK public sector borrowing requirements and EU consumer confidence – see table below for more details.


Given the poor Chinese PMI data it is somewhat surprising that the base metals are not weaker, but it looks as though a lot of bad news is now priced-in. The rallies underway are likely to be driven by non-fundamental factors, such demand for financial reasons in China and general short-covering. We have been expecting short-covering rallies and now these seem to be getting underway. Given how bearish sentiment has been, there may be a considerable counter-trend move, but conversely the bearish fundamentals are likely to encourage scale up selling too. For now, we expect the rallies to run further.


Gold prices are leading a broad based rally in the precious metals driven by safe-haven demand, but in turn that is likely to be fuelled by short-covering. As the fund gross short positions have become large there may well be room for considerable rallies.




Overnight Performance

BST 06:05:55 +/- +/- % Lots

Cu 5077.5 -12.5 -0.2% 1731

Al 1573 5 0.3% 1158

Ni 10350 15 0.1% 641

Zn 1814 1 0.1% 185

Pb 1710 4 0.2% 139

Sn 15335 40 0.3% 29

Steel 300 0 0.0% Total

  Average (BM ex-Steel) 0.1% 3883

Gold 1164.4 9.5 0.8%

Silver 15.64 0.11 0.7%

Platinum 1034.7 3.7 0.4%

Palladium 624.5 3.5 0.6%

  Average PM 0.6%



SHFE Prices 6:06 BST Change % Change

Cu 38990 430 1.1%

AL 12035 45 0.4%

Zn 14830 100 0.7%

Pb 13350 20 0.2%

Ni 80600 -360 -0.4%

Sn 106000 -1270 -1.2%

Average change (base metals) 236.5 0.1%

Rebar 2033 0 0.0%

Au 242.8 7.45 3.2%

Ag 3528 66 1.9%



Economic Agenda

BST Country Data ACTUAL Expected Previous

2:35am JPY Flash Manufacturing PMI 51.9 52.10 51.20

2:45am CNY Caixin Flash Manufacturing PMI 47.1 48.10 47.80

 7:00am EUR GfK German Consumer Climate 10.20 10.10

8:00am EUR French Flash Manufacturing PMI 49.8 49.6

8:00am EUR French Flash Services PMI 52.1 52

8:30am EUR German Flash Manufacturing PMI 51.7 51.8

8:30am EUR German Flash Services PMI 53.7 53.8

9:00am EUR Flash Manufacturing PMI 52.3 52.4

9:00am EUR Flash Services PMI 54.10 54.00

9:30am GBP Public Sector Net Borrowing -2.3B 8.6B

2:45pm USD Flash Manufacturing PMI 53.9 53.8

3:00pm EUR Consumer Confidence -7 -7


Edited by SHMET