Platinum prices fell around 15% in the last three weeks. Prices are now at their lowest levels since January 2009. What is causing the price slump? Is it just the Volkswagen scandal? We don’t think so.
Platinum hits 6-year low. Source: MetalMiner analysis of @StockCharts.com data.
Just before prices plunged, the London Bullion Market Association (LBMA) held a conference in Vienna in which senior representatives from all sectors of the precious metals market attended. The audience predicted an average platinum price of $1,072 per ounce for next year.
They also predicted higher palladium prices for 2016, averaging $844 per ounce. If you read us, you probably know that we don’t like forecasts, especially when based on opinions. The LBMA audience better be lowering their forecast after prices nose-dived days after the conference. Read more
The fallout from the Paris attacks was felt in markets this morning as both gold and oil jumped in early trading. There’s still little good news to report for copper, which saw a major producer slash its premium for delivery to China.
Gold, Oil Up in Early Trading
Gold and oil edged up in nervous trading this morning following the deadly attacks on Paris and large-scale French airstrikes in Syria, although broader commodities markets remain weak on poor fundamentals, Reuters reported.
Gold, typically seen as a safe haven in times of heightened risk, jumped about 1% as Asian shares and US stock futures fell but later fell. The euro skidded to a 6-1/2 month low. Oil prices edged higher, but copper slipped to a six-year low.
Codelco Cuts Chinese Copper Premium
Chile’s Codelco, the world’s top copper producer, has slashed its 2016 premium to China for the refined metal by more than a quarter to a three-year low, traders said on Monday, the latest sign of weakening demand from the market’s biggest buyer.
In a move that will deepen concerns about waning consumption as growth in the world’s second-largest economy slows, Chile’s state-owned miner, Codelco, offered a premium of $98 per metric ton for 2016 term shipments, down from $133 per mt this year.
In October, the yellow metal rallied thanks to a weaker US dollar, but we already pointed out that the rally was likely to be short-lived as we expected the dollar to start rising. This is exactly what happened, the US dollar index recently made a seven-month high while gold prices fell sharply with the rest of commodities tied to the dollar (commodities are priced in US dollars and thus are negatively correlated to dollar fluctuations).
The spot price of gold. Source: MetalMiner analysis of @StockCharts.com data.
This month, investors now see a 70% chance of a Federal Reserve interest rate increase in December after the release of positive non-farm payroll numbers and the latest comments from the Fed.
After hitting their lowest level in 6 years in August, gold prices have been rising to an almost 4-month high. Last week we noticed technical strength in silver prices and gold followed this week.
Gold prices approaching resistance. Source: MetalMiner analysis of @stockcharts.com data.
Interest rates have been dropping on lower expectations for a Federal Reserve interest rate hike this year. Investors know that the Fed’s decision to raise interest rates rests on economic data and the latest economic figures are not encouraging. The latest US retail numbers continue to show slow growth while economic data from China is adding more evidence that it’s economy is slowing more than expected. Read more
Data from the Energy Information Administration confirmed a large addition to US crude oil stockpiles last week, another sign that a global oversupply of crude isn’t going away.
Oil Roller Coaster Now Down Again
While we saw some signs that metals prices might be going up this week – you guys hear about zinc and lead? – the oil roller coaster shows that we’re nowhere near out of the woods when it comes to commodities. My colleague, Raul de Frutos, didn’t buy it when a Reuters analysis said that oil had reached a bottom due to Fibonacci Retracements and, sure enough, crude fell again this week.
So much for the oil price bottom. Source: MetalMiner analysis of @StockCharts.com data.
We regularly caution readers to not follow Fibonacci sequences or other trading fads, but rather long-term trends with well-defined levels of support and resistance. Check out our forecast offering for more on that.
Lead and Zinc Back Up
Meanwhile, back with zinc and lead, Glencorecut production at many of its mines this week and nearly singlehandedly eliminated a surplus of the metals. Lead prices went up 9% in only 2 days and broke short-term resistance. Zinc, for its part, went up 10% and also broke short-term resistance.
A major Chinese bank sought to buy a trader with top-tier London Metal Exchange access and gold’s rally paused a bit this morning.
CCB in Talks to Buy Metdist
China Construction Bank (CCB) is in talks to buy UK firm Metdist Trading Limited, which would give the country’s second-largest lender by assets access to top-tier trading on the London Metal Exchange, 2 metal industry sources told Reuters. If the deal is successful, CCB will join a growing list of Chinese entities gaining entry to the LME, which sets global benchmark prices of industrial metals including copper, aluminum and zinc.
Gold Rally Pulls Back a Bit
Gold prices pulled back from a 3-month high early Friday on pressure from a stronger dollar and as some investors moved to lock in gains on the recent rally.
The most actively traded gold futures contract, for December delivery, was recently down $6, or 0.5%, at $1,181.50 an ounce on the Comex division of the New York Mercantile Exchange.
The 6th Circuit Court of Appeals has stayed the Environmental Protection Agency‘s new water rules in all 50 states, giving a reprieve to manufacturers until the full court hears arguments over the legality of the new rules.
Gold Climbs, Dollar Falls
Gold jumped to a 3-month high today bolstered by a weaker dollar and expectations the Federal Reserve will not hike interest rates this year. The dollar hovered near a 3-week low versus a basket of major currencies, anchored by doubts that the Fed will raise interest rates by the year’s end.
Spot gold reached a peak of $1,169 an ounce and was up 0.6% at $1,163.96 an ounce at 1401 GMT, although it has retreated a bit since. US gold futures for December delivery were up $8.40 an ounce at $1,164.50.
Appeals Court Stays New EPA Water Rules
A federal appeals court on Friday temporarily blocked an Environmental Protection Agency regulation that would bring more waterways and wetlands under federal protection, in a sign the effort could face an uphill legal battle.
The order, issued on a 2-1 vote from the Cincinnati-based 6th US Circuit Court of Appeals, was a preliminary boost for a group of 18 states that challenged the EPA regulation. The rule seeks to bring smaller bodies of water at the outer edges of watersheds under the Clean Water Act and was issued jointly with the US Army Corps of Engineers.
“A stay temporarily silences the whirlwind of confusion that springs from uncertainty about the requirements of the new rule and whether they will survive legal testing,” wrote the majority of the 3-judge appeals court panel.
The court said the challengers had demonstrated “a substantial possibility of success” in winning the case. Manufacturers, who would be subject to more stringent regulations under the plan, applauded the decision.
A weak jobs report had far-reaching effects for commodities and metals this morning.
Fed Still Wants to Increase Interest Rates
Eric Rosengren still expects the Federal Reserve to raise interest rates this year despite what the head of the Boston Federal Reserve Bank called a “weak” September jobs report, which could signal a more significant economic slowdown that delays the policy tightening.
Spot gold, was up 0.2% at $1,139.81 an ounce by 1333 GMT, having been lower earlier.
The metal had gained 2.2% on Friday, its biggest one-day rise since Jan. 15, after data showed US employers slammed the brakes on hiring over the last two months. Non-farm payrolls rose by only 142,000 last month, below economists’ expectations of 203,000.
We really don’t pay that much attention to gold’s demand because gold is the only commodity where physical annual demand is only a tiny fraction of total supply available. Unlike base metals, where physical demand plays a big role because of their industrial uses, shortages of gold caused by physical demand never happen.
For this reason, the price of gold is almost entirely dependent on the factors that drive traders’ psychology, such as inflation and the dollar. Despite all that, we still see analysts writing lengthy reports analyzing factors with zero predictability, such as jewelry usage and annual gold production.
Gold struggling to overcome resistance at $1,160 per ounce. Source: MetalMiner analysis of @StockCharts.com data.
Since August, gold prices haven’t moved much. They have traded between $1,160 per ounce and $1,080 an ounce. As we pointed out in July, gold broke a key support level and now prices have some resistance to overcome before they can attempt to advance.
Gold is considered a safe-haven asset and certainly equity markets are not in their best shape at the moment. However, it’s hard to imagine gold prices rising while commodities markets, overall, fall and the dollar is strong. The same applies to silver, which is showing the exact same behavior.
Silver struggling to overcome resistance at $15.6 an ounce. Source: MetalMiner analysis of @StockCharts.com data.
What This Mean For Metal Buyers
Gold and silver prices remain weak and it’s difficult to see them increasing while commodities keep falling and the dollar remains strong. Buyers should keep an eye on $1,160 per ounce and $15.6 an ounce levels. A break above these levels would signal a change in the direction of the short-term trend.
Switzerland’s WEKO, a government watchdog group, said on Monday it had opened an investigation into possible manipulation of the precious metals market by several major banks. Its investigation, the result of a preliminary probe, was looking at possible collusion of bid/ask spreads in precious metals markets by UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui.
The move comes a month after press reports that the European Union’s competition regulator was investigating anti-competitive behavior in precious metals spot trading, and follows news of a US probe by the Department of Justice and the Commodity Futures Trading Commission earlier this year.
Horizonte Buys Glencore Nickel Mine
Horizonte Mineralssaid on Monday it has bought Glencore’s Araguaia nickel project in Brazil for $8 million.
“This is a game-changing transaction for Horizonte. We have been able to negotiate a unique transaction leveraging the current depressed commodity markets,” Horizonte CEO Jeremy Martin said in a statement.