BASE METALS WEAKER, GOLD PRICES FIRMER AS RISK OFF RETURNS

The metals, with the exception of tin, started on a back footing yesterday and ended the day in the same way with tin up 1.4 percent and at the highest since mid-October, while the rest closed down an average of 1.4 percent, led by a 2.5 percent drop in zinc, aluminium was off 1.8 percent and copper closed down 0.6 percent at $4,657. Precious metals started Tuesday up an average of 0.3 percent having got some lift in early trading, but ended the day up 1.2 percent on average, led by a 1.7 percent gain in gold to $1,230.20, platinum closed up 1.6 percent, while silver and palladium closed up 0.8 percent.

This morning, the base metals are down across the board by an average of 0.7 percent, led by a 1.2 percent fall in copper to $4,601, the rest are off between 0.3 percent for aluminium and 0.9 percent for zinc at $1,723. Volume has been average with 5,639 lots traded.

Precious metals have drifted fairly uniformly this morning with losses of 0.2 percent in gold and silver, 0.3 percent in palladium and 0.5 percent in platinum. Gold prices are last at $1,228.10.

In Shanghai, most of the base metals are down, the exception is tin that is up 0.6 percent, the rest are down an average of 1.1 percent led by a 1.8 percent drop in zinc, while copper is off 1.4 percent at Rmb 35,830. Spot copper in Changjiang, is off 0.7 percent at Rmb 35,600-35,800, the spread with the April contract has narrowed to an equivalent of around $5 per tonne contango and the LME/Shanghai copper arbitrage ratio is around 7.78.

In other markets in China, iron ore prices edged up 0.2 percent yesterday to $51.60 and are flat in Dalian today, steel rebar is off 0.6 percent, gold prices are up 1.4 percent and silver is up 0.2 percent. In international markets, Brent crude is off 0.2 percent at $32.84.

Equities ended up following Asian equities lower on Tuesday with the Euro Stoxx 50 closing down 1.6 percent and the Dow closed down 1.2 percent, the weaker manufacturing data from Monday and weaker oil prices finally weighing on sentiment. This morning in Asia, the markets are down across the board with the Nikkei and CSI 300 off one percent, the Hang Seng is down 1.6 percent, the ASX200 is down 2.1 percent and the Kospi is off 0.2 percent.

In FX- the dollar index is firm at 97.49, it is finding some resistance around 97.60, the yen is strong at 111.78, while the euro, sterling, and aussie are weaker at 1.1017, 1.3977 and 0.7182 respectively. Euro-sterling is weak at 0.7882 and the emerging market currencies we follow are mainly consolidating, although the yuan is drifting lower again, last at 6.5355.

On the economic agenda the focus is likely to be on US flash services PMI data, new home sales and crude oil inventories. FOMC member Stanley Fischer was speaking earlier this morning, saying the Fed did not yet know what course of action it would be taking at its next meeting as it was too early to assess the impact of market volatility. This evening, UK Monetary Policy Committee member Sir Jon Cunliffe is speaking – see table below.

The base metals are struggling more now, the recent strength has faltered so it is now a question of whether this is just a consolidation, or whether selling will start to dominate again after the stronger tones of late. Aluminium, zinc and tin have all pushed the envelope on the upside this week, while copper and nickel have just failed to overcome former resistance and lead has been falling steadily. Given little has changed in the broader economy, other than continued weakness is some of the data, it may be there is little to drive buying/short-covering, especially with the firmer dollar. In addition, the rebound in gold and the yen, suggest safe-haven buying is picking up again.

Gold prices seem to have consolidated over the past week or so and are now looking better place to continue higher. Silver is still consolidating, as is platinum and to a lesser extent palladium. They all look well placed to push higher again, but we would expect they will only do so if gold leads the way. Platinum’s discount to gold is $290 and the gold/silver ratio is high at 1:80.4.